G.R. No.

L-18965

October 30, 1964

COMPAIA MARITIMA, petitioner, vs.

INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by
telephone the services of the Compaia Maritima, a shipping corporation, for the shipment of
2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for their
subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel
Navigator. This oral contract was later on confirmed by a formal and written booking issued
by Macleod's branch office in Sasa and handcarried to Compaia Maritima's branch office in
Davao in compliance with which the latter sent to Macleod's private wharf LCT Nos. 1023
and 1025 on which the loading of the hemp was completed on October 29, 1952. These two
lighters were manned each by a patron and an assistant patron. The patrons of both barges
issued the corresponding carrier's receipts and that issued by the patron of Barge No. 1025
reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from
MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at
Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the
government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot
belonging to Compaia Maritima on which the hemp was to be loaded. During the night of
October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the
damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod
promptly notified the carrier's main office in Manila and its branch in Davao advising it of its
liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for
cleaning, washing, reconditioning, and redrying. During the period from November 1-15,
1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of
2,197.75 piculs of the reconditioned hemp out of the original cargo of 1,162 bales weighing
2,324 piculs which had a total value of 116,835.00. After reclassification, the value of the
reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72. Adding to
this last amount the sum of P8,863.30 representing Macleod's expenses in checking,
grading, rebating, and other fees for washing, cleaning and redrying in the amount of
P19.610.00, the total loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No.
1025, were insured with the Insurance Company of North America against all losses and
damages. In due time, Macleod filed a claim for the loss it suffered as above stated with said
insurance company, and after the same had been processed, the sum of P64,018.55 was
paid, which was noted down in a document which aside from being a receipt of the amount
paid, was a subrogation agreement between Macleod and the insurance company wherein
the former assigned to the latter its rights over the insured and damaged cargo. Having failed
to recover from the carrier the sum of P60,421.02, which is the only amount supported by

receipts, the insurance company instituted the present action on October 28, 1953. After trial,
the court a quo rendered judgment ordering the carrier to pay the insurance company the
sum of P60,421.02, with legal interest thereon from the date of the filing of the complaint until
fully paid, and the costs. This judgment was affirmed by the Court of Appeals on December
14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and
the shipper even if the loss occurred when the hemp was loaded on a barge owned by the
carrier which was loaded free of charge and was not actually loaded on the S.S. Bowline
Knot which would carry the hemp to Manila and no bill of lading was issued therefore?; (2)
Was the damage caused to the cargo or the sinking of the barge where it was loaded due to
a fortuitous event, storm or natural disaster that would exempt the carrier from liability?; (3)
Can respondent insurance company sue the carrier under its insurance contract as assignee
of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this
jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied
admission by the carrier of the correctness and sufficiency of the shipper's statement of
accounts contrary to the burden of proof rule?; and (5) Can the insurance company maintain
this suit without proof of its personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals,
Macleod and Company contracted by telephone the services of petitioner to ship the hemp in
question from the former's private pier at Sasa, Davao City, to Manila, to be subsequently
transhipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a
formal and written booking issued by the shipper's branch office, Davao City, in virtue of
which the carrier sent two of its lighters to undertake the service. It also appears that the
patrons of said lighters were employees of the carrier with due authority to undertake the
transportation and to sign the documents that may be necessary therefor so much so that the
patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as
follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from
MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at
Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf
at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the
contract of carriage already entered into between the carrier and the shipper, for that
preparatory step is but part and parcel of said contract of carriage. The lighters were merely
employed as the first step of the voyage, but once that step was taken and the hemp
delivered to the carrier's employees, the rights and obligations of the parties attached thereby
subjecting them to the principles and usages of the maritime law. In other words, here we
have a complete contract of carriage the consummation of which has already begun: the
shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing
it on a lighter manned by its authorized employees, under which Macleod became entitled to
the privilege secured to him by law for its safe transportation and delivery, and the carrier to
the full payment of its freight upon completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the
contract to carry and deliver, and if actually no goods are received there can be no
such contract. The liability and responsibility of the carrier under a contract for the
carriage of goods commence on their actual delivery to, or receipt by, the carrier

or an authorized agent. ... and delivery to a lighter in charge of a vessel for

shipment on the vessel, where it is the custom to deliver in that way, is a good
delivery and binds the vessel receiving the freight, the liability commencing at the
time of delivery to the lighter. ... and, similarly, where there is a contract to carry
goods from one port to another, and they cannot be loaded directly on the vessel
and lighters are sent by the vessel to bring the goods to it, the lighters are for the
time its substitutes, so that the bill of landing is applicable to the goods as soon as
they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied)
... The test as to whether the relation of shipper and carrier had been established is,
Had the control and possession of the cotton been completely surrendered by the
shipper to the railroad company? Whenever the control and possession of goods
passes to the carrier and nothing remains to be done by the shipper, then it can be
said with certainty that the relation of shipper and carrier has been established.
Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff &
Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v.
St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F.
Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).
The claim that there can be no contract of affreightment because the hemp was not actually
loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as
already stated, the delivery of the hemp to the carrier's lighter is in line with the contract. In
fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was
receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other
hand, the authorities are to the effect that a bill of lading is not indispensable for the creation
of a contract of carriage.
Bill of lading not indispensable to contract of carriage. As to the issuance of a bill
of lading, although article 350 of the Code of Commerce provides that "the shipper
as well as the carrier of merchandise or goods may mutua-lly demand that a bill of
lading is not indispensable. As regards the form of the contract of carriage it can be
said that provided that there is a meeting of the minds and from such meeting arise
rights and obligations, there should be no limitations as to form." The bill of lading is
not essential to the contract, although it may become obligatory by reason of the
regulations of railroad companies, or as a condition imposed in the contract by the
agreement of the parties themselves. The bill of lading is juridically a documentary
proof of the stipulations and conditions agreed upon by both parties. (Del Viso, pp.
314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not
demand, as necessary requisite in the contract of transportation, the delivery of the
bill of lading to the shipper, but gives right to both the carrier and the shipper to
mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May
6, 1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the
goods for transportation, and not merely with the formal execution of a receipt or bill
of lading; the issuance of a bill of lading is not necessary to complete delivery and
acceptance. Even where it is provided by statute that liability commences with the
issuance of the bill of lading, actual delivery and acceptance are sufficient to bind
the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself
behind the claim of force majeure or storm which occurred on the night of October 29, 1952.
But the evidence fails to bear this out.

Rather, it shows that the mishap that caused the damage or loss was due, not to force
majeure, but to lack of adequate precautions or measures taken by the carrier to prevent the
loss as may be inferred from the following findings of the Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge
had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea
water in the same manner as rain entered "thru tank man-holes", according to the
patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the barge was not
seaworthy it should be noted that on the night of the nautical accident there was
no storm, flood, or other natural disaster or calamity. Certainly, winds of 11 miles
per hour, although stronger than the average 4.6 miles per hour then prevailing in
Davao on October 29, 1952 (exh. 5), cannot be classified as storm. For according
to Beaufort's wind scale, a storm has wind velocities of from 64 to 75 miles per
hour; and by Philippine Weather Bureau standards winds should have a velocity of
from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance
Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March
12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine
surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various
buoyancy compartments' (exh. JJJ); and this report finds confirmation on the abovementioned admission of two witnesses for appellant concerning the cracks of the lighter's
bottom and the entrance of the rain water 'thru manholes'." We are not prepared to dispute
this finding of the Court of Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as
assignee of the owner of the cargo for the insurance amount it paid to the latter under the
insurance contract. And this is so because since the cargo that was damaged was insured
with respondent company and the latter paid the amount represented by the loss, it is but fair
that it be given the right to recover from the party responsible for the loss. The instant case,
therefore, is not one between the insured and the insurer, but one between the shipper and
the carrier, because the insurance company merely stepped into the shoes of the shipper.
And since the shipper has a direct cause of action against the carrier on account of the
damage of the cargo, no valid reason is seen why such action cannot be asserted or availed
of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a
defense any defect in the insurance policy not only because it is not a privy to it but also
because it cannot avoid its liability to the shipper under the contract of carriage which binds it
to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting the
following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the question of
whether or not the disputed abaca cargo was covered by Marine Open Cargo
Policy No. MK-134 isued by appellee. Appellant was neither a party nor privy to this
insurance contract, and therefore cannot avail itself of any defect in the policy which
may constitute a valid reason for appellee, as the insurer, to reject the claim of
Macleod, as the insured. Anyway, whatever defect the policy contained, if any, is
deemed to have been waived by the subsequent payment of Macleod's claim by
appellee. Besides, appellant is herein sued in its capacity as a common carrier, and
appellee is suing as the assignee of the shipper pursuant to exhibit MM. Since, as
above demonstrated, appellant is liable to Macleod and Company of the Philippines
for the los or damage to the 1,162 bales of hemp after these were received in good
order and condition by the patron of appellant's LCT No. 1025, it necessarily follows
that appellant is likewise liable to appellee who, as assignee of Macleod, merely

stepped into the shoes of and substi-tuted the latter in demanding from appellant
the payment for the loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the
carrier asked the lower court to order the production of the books of accounts of the Odell
Plantation containing the charges it made for the loss of the damaged hemp for verification of
its accountants, but later it desisted therefrom on the claim that it finds their production no
longer necessary. This desistance notwithstanding, the shipper however pre-sented other
documents to prove the damage it suffered in connection with the cargo and on the strength
thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And after the Court
of Appeals affirmed this award upon the theory that the desistance of the carrier from
producing the books of accounts of Odell Plantation implies an admission of the correctness
of the statements of accounts contained therein, petitioner now contends that the Court of
Appeals erred in basing the affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of
accounts of Odell Plantation presented in court is tantamount to an admission that the
statements contained therein are correct and their verification not necessary because its
main defense here, as well as below, was that it is not liable for the loss because there was
no contract of carriage between it and the shipper and the loss caused, if any, was due to a
fortuitous event. Hence, under the carrier's theory, the correctness of the account
representing the loss was not so material as would necessitate the presentation of the books
in question. At any rate, even if the books of accounts were not produced, the correctness of
the accounts cannot now be disputed for the same is supported by the original documents on
which the entries in said books were based which were presented by the shipper as part of
its evidence. And according to the Court of Appeals, these documents alone sufficiently
establish the award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance company to
maintain this action, we find the same of no importance, for the attorney himself of the carrier
admitted in open court that it is a foreign corporation doing business in the Philippines with a
personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.

G.R. No. L-36481-2 October 23, 1982

AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees, vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.

Bico was able to take delivery of 907 cavans of rice 2 Appellees' claims for the value of said
goods were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion
of which reads as follows:

Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.

WHEREFORE, judgment is rendered as follows:
Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.
ESCOLIN, J.:
This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the
Court of First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring
appellant Philippine Steam Navigation liable for damages for the loss of the appellees'
cargoes as a result of a fire which gutted the Bureau of Customs' warehouse in Pulupandan,
Negros Occidental.
The Court of Appeals certified the case to Us because only pure questions of law are raised
therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as
follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the
appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the
following cargoes, to wit:

1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C.
Servando the aggregate sum of P1,070.50 with legal interest thereon from the date
of the filing of the complaint until fully paid, and to pay the costs.
2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy
Bico the aggregate sum of P16,625.00 with legal interest thereon from the date of
the filing of the complaint until fully paid, and to pay the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe
extraordinary diligence from the moment the goods are unconditionally placed in their
possession "until the same are delivered, actually or constructively, by the carrier to the
consignee or to the person who has a right to receive them, without prejudice to the
provisions of Article 1738. "
The court a quo held that the delivery of the shipment in question to the warehouse of the
Bureau of Customs is not the delivery contemplated by Article 1736; and since the burning of
the warehouse occurred before actual or constructive delivery of the goods to the appellees,
the loss is chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in question,
the parties agreed to limit the responsibility of the carrier for the loss or damage that may be
caused to the shipment by inserting therein the following stipulation:

Clara Uy Bico
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando
44 cartons of colored paper,
toys and general merchandise valued at P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant. 1
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes
were discharged, complete and in good order, unto the warehouse of the Bureau of
Customs. At about 2:00 in the afternoon of the same day, said warehouse was razed by a
fire of unknown origin, destroying appellees' cargoes. Before the fire, however, appellee Uy

Clause 14. Carrier shall not be responsible for loss or damage to shipments billed
'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall
carrier be responsible for loss or damage caused by force majeure, dangers or
accidents of the sea or other waters; war; public enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is contrary to law,
morals or public policy.
Appellees would contend that the above stipulation does not bind them because it was
printed in fine letters on the back-of the bills of lading; and that they did not sign the same.
This argument overlooks the pronouncement of this Court in Ong Yiu vs. Court of Appeals,
promulgated June 29, 1979, 3 where the same issue was resolved in this wise:
While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is
nevertheless bound by the provisions thereof. 'Such provisions have been held to
be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation'. It is what is
known as a contract of 'adhesion', in regards which it has been said that contracts
of adhesion wherein one party imposes a ready made form of contract on the other,

as the plane ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent." (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr.
Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).
Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the
basic principle of law written in Article 1 1 7 4 of the Civil Code:
Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable.
Thus, where fortuitous event or force majeure is the immediate and proximate cause of the
loss, the obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent
of Article 1174 of the Civil Code, defines 'caso fortuito' as 'an event that takes place by
accident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In
a legal sense and, consequently, also in relation to contracts, a 'caso fortuito' presents the
following essential characteristics: (1) the cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his obligation, must be independent
of the human will; (2) it must be impossible to foresee the event which constitutes the 'caso
fortuito', or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be
such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and
(4) the obligor must be free from any participation in the aggravation of the injury resulting to
the creditor." In the case at bar, the burning of the customs warehouse was an extraordinary
event which happened independently of the will of the appellant. The latter could not have
foreseen the event.
There is nothing in the record to show that appellant carrier ,incurred in delay in the
performance of its obligation. It appears that appellant had not only notified appellees of the
arrival of their shipment, but had demanded that the same be withdrawn. In fact, pursuant to
such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the burning
of the warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of the goods
in the Customs warehouse pending withdrawal thereof by the appellees was undoubtedly
made with their knowledge and consent. Since the warehouse belonged to and was
maintained by the government, it would be unfair to impute negligence to the appellant, the
latter having no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6,
where this Court held the defendant liable for damages arising from a fire caused by the
negligence of the defendant's employees while loading cases of gasoline and petroleon
products. But unlike in the said case, there is not a shred of proof in the present case that the
cause of the fire that broke out in the Custom's warehouse was in any way attributable to the
negligence of the appellant or its employees. Under the circumstances, the appellant is
plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.

SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero, Abad Santos and De Castro, JJ., concur.
Separate Opinions
AQUINO, J., concurring:
I concur. Under article 1738 of the Civil Code "the extraordinary liability of the common
carrier continues to be operative even during the time the goods are stored in the warehouse
of the carrier at the place of destination, until the consignee has been advised of the arrival of
the goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them".
From the time the goods in question were deposited in the Bureau of Customs' warehouse in
the morning of their arrival up to two o' clock in the afternoon of the same day, when the
warehouse was burned, Amparo C. Servando and Clara Uy Bico, the consignees, had
reasonable opportunity to remove the goods. Clara had removed more than one-half of the
rice consigned to her.
Moreover, the shipping company had no more control and responsibility over the goods after
they were deposited in the customs warehouse by the arrastre and stevedoring operator.
No amount of extraordinary diligence on the part of the carrier could have prevented the loss
of the goods by fire which was of accidental origin.
Under those circumstances, it would not be legal and just to hold the carrier liable to the
consignees for the loss of the goods. The consignees should bear the loss which was due to
a fortuitous event.

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee, vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of
First Instance of Manila, finding defendants carrier and agent, liable for the value of goods
never delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the
liability of the defendants, now appellants, under the bill of lading covering the subject
shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING
COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S
SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD,
(represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC.
Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was
unloaded and delivered in good order and condition to the bonded warehouse of
AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the
port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response,
consignee herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at
the prevailing rate of exchange at that time, against the former, but neither paid. Hence, the
filing of the instant suit to enforce payment. Defendants-appellants brought in AMCYL as
third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount
of P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may
recoup whatever they may pay plaintiff by enforcing the judgment against third party
defendant AMCYL which had earlier been declared in default. Only the defendants appealed
from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses
and stipulations which should be examined in the light of pertinent legal provisions and
settled jurisprudence. This undertaking is not only proper but necessary as well because of
the nature of the bill of lading which operates both as a receipt for the goods; and more
importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a
contract, it is the law between the parties thereto 3 who are bound by its terms and
conditions 4 provided that these are not contrary to law, morals, good customs, public order
and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge
wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading"
which is Bremen, Germany, while the freight had been prepaid up to the port of destination or
the "port of discharge of goods in this case, Davao, the carrier undertook to transport the
goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from shipManila. Thereafter, the goods were to be transshipped by the carrier to the port of destination
or "port of discharge of goods The stipulation is plainly indicated on the face of the bill which

contains the following phrase printed below the space provided for the port of discharge from
ship", thus: t.hqw
if goods are to be transshipped at port of discharge, show destination under the
column for "description of contents" 7
As instructed above, the following words appeared typewritten under the column for
"description of contents": t.hqw
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and
delivering the same into the custody of AMCYL, the bonded warehouse, appellants were
acting in full accord with the contractual stipulations contained in Bill of Lading No. 18. The
delivery of the goods to AMCYL was part of appellants' duty to transship the goods from
Manila to their port of destination-Davao. The word "transship" means: t.hqw
to transfer for further transportation from one ship or conveyance to another 9
The extent of appellant carrier's responsibility and/or liability in the transshipment of the
goods in question are spelled out and delineated under Section 1, paragraph 3 of Bill of
Lading No. 18, to wit: t.hqw
The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)
and in Section 11 of the same Bill, which provides: t.hqw
Whenever the carrier or m aster may deem it advisable or in any case where the
goods are placed at carrier's disposal at or consigned to a point where the ship
does not expect to load or discharge, the carrier or master may, without notice,
forward the whole or any part of the goods before or after loading at the original
port of shipment, ... This carrier, in making arrangements for any transshipping or
forwarding vessels or means of transportation not operated by this carrier shall be
considered solely the forwarding agent of the shipper and without any other
responsibility whatsoever even though the freight for the whole transport has been
collected by him. ... Pending or during forwarding or transshipping the carrier may
store the goods ashore or afloat solely as agent of the shipper and at risk and
expense of the goods and the carrier shall not be liable for detention nor
responsible for the acts, neglect, delay or failure to act of anyone to whom the
goods are entrusted or delivered for storage, handling or any service incidental
thereto (Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that
they have discharged the same in full and good condition unto the custody of AMCYL at the
port of discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation
(Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the
carrier from liability for loss or damage to the goods when the same are not in its actual
custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES
LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the
material facts but more importantly, as to the stipulations contained in the bill of lading
concerned. As if to underline their awesome likeness, the goods in question in both cases
were destined for Davao, but were discharged from ship in Manila, in accordance with their
respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as
the subject stipulations before Us, provides: t.hqw
The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection
with all transshipping or forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or
public policy, We sustained their validity 13 Applying said stipulations as the law between the
parties in the aforecited case, the Court concluded that: t.hqw
... The short form Bill of Lading ( ) states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading ( ), appellee's responsibility as a common carrier ceased the moment the
goods were unloaded in Manila and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above
pronouncements, and in conformity with the pertinent provisions of the New Civil Code,
Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid
stipulations between the parties insofar as they exempt the carrier from liability for loss or
damage to the goods while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the New Civil
Code. 15 In all matters not regulated by said Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special laws. 16 A careful
perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII,
Book IV) directs our attention to Article 1736 thereof, which reads: t.hqw
Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by

the carrier to the consignee, or to the person who has a right to receive them,
without prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus: t.hqw
Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and
are stored in the warehouse of the carrier. The subject goods were still awaiting
transshipment to their port of destination, and were stored in the warehouse of a third party
when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under
said article, the carrier may be relieved of the responsibility for loss or damage to the goods
upon actual or constructive delivery of the same by the carrier to the consignee, or to the
person who has a right to receive them. In sales, actual delivery has been defined as the
ceding of corporeal possession by the seller, and the actual apprehension of corporeal
possession by the buyer or by some person authorized by him to receive the goods as his
representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is given him to remove the
goods. 18 The court a quo found that there was actual delivery to the consignee through its
duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed
between appellant and appellee in the course of the transactions that gave birth to the
present suit. Two undertakings appeared embodied and/or provided for in the Bill of
Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen,
Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from
Manila to Davao, with appellant acting as agent of the consignee. 20 At the hiatus between
these two undertakings of appellant which is the moment when the subject goods are
discharged in Manila, its personality changes from that of carrier to that of agent of the
consignee. Thus, the character of appellant's possession also changes, from possession in
its own name as carrier, into possession in the name of consignee as the latter's agent. Such
being the case, there was, in effect, actual delivery of the goods from appellant as carrier to
the same appellant as agent of the consignee. Upon such delivery, the appellant, as
erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods
from that point onwards. This is the full import of Article 1736, as applied to the case before
Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value
of the missing goods, It is true that the transshipment of the goods, which was the object of
the agency, was not fully performed. However, appellant had commenced said performance,
the completion of which was aborted by circumstances beyond its control. An agent who
carries out the orders and instructions of the principal without being guilty of negligence,
deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the
object of the agency, 21This can be gleaned from the following provisions of the New Civil
Code on the obligations of the agent: t.hqw

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may
suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict
between his interests and those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods
awaiting transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith
with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the
New Civil Code on common carriers, agency and contracts, they incur no liability for the loss
of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is
hereby DISMISSED.
No costs.
SO ORDERED.1wp

G.R. No. L-9840

April 22, 1957

LU DO & LU YM CORPORATION, petitioner-defendant, vs.

I. V. BINAMIRA, respondent-plaintiff.

and condition. But after it was delivered to respondent three days later, the same was
examined by a marine surveyor who found that some films and supplies were missing valued
at P324.63.

Ross, Selph, Carrascoso and Janda for petitioner.

I. V. Binamira in his own behalf.

The question now to be considered is: Is the carrier responsible for the loss considering that
the same occurred after the shipment was discharged from the ship and placed in the
possession and custody of the customs authorities?

BAUTISTA ANGELO, J.:

The Court of Appeals found for the affirmative, making on this point the following comment:

On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against
defendant to recover the sum of P324.63 as value of certain missing shipment, P150 as
actual and compensatory damages, and P600 as moral and pecuniary damages. After trial,
the court rendered judgment ordering defendant to pay plaintiff the sum of P216.84, with
legal interest. On appeal, the Court of Appeals affirmed the judgment, hence the present
petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the
M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or photographic supplies
consigned to the order of respondent I. V. Binamira. For this shipment, Bill of Lading No. 29
was issued. The ship arrived at the port of Cebu on September 23, 1951 and discharged her
cargo on September 23, and 24, 1951, including the shipment in question, placing it in the
possession and custody of the arrastre operator of said port, the Visayan Cebu Terminal
Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its
cargo. During the discharge, good order cargo was separated from the bad order cargo on
board the ship, and a separate list of bad order cargo was prepared by Pascual Villamor,
checker of the stevedoring company. All the cargo unloaded was received at the pier by the
Visayan Cebu Terminal Company Inc, arrastre operator of the port. This terminal company
had also its own checker, Romeo Quijano, who also recorded and noted down the good
cargo from the bad one. The shipment in question, was not included in the report of bad
order cargo of both checkers, indicating that it was discharged from the, ship in good order
and condition.
On September 26, 1951, three days after the goods were unloaded from the ship,
respondent took delivery of his six cases of photographic supplies from the arrastre operator.
He discovered that the cases showed signs of pilferage and, consequently, he hired marine
surveyors, R. J. del Pan & Company, Inc., to examine them. The surveyors examined the
cases and made a physical count of their contents in the presence of representatives of
petitioner, respondent and the stevedoring company. The surveyors examined the cases and
made a physical count of their contents in the presence of representatives of petitioner,
respondent and the stevedoring company. The finding of the surveyors showed that some
films and photographic supplies were missing valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies were
discharged from the ship at the port of Cebu by the stevedoring company hired by petitioner
as agent of the carrier. All the unloaded cargo, including the shipment in question, was
received by the Visayan Cebu Terminal Company Inc., the arrastre operator appointed by the
Bureau of Customs. It also appears that during the discharge, the cargo was checked both
by the stevedoring company hired by petitioner as well as by the arrastre operator of the port,
and the shipment in question, when discharged from the ship, was found to be in good order

In this jurisdiction, a common carrier has the legal duty to deliver goods to a
consignee in the same condition in which it received them. Except where the loss,
destruction or deterioration of the merchandise was due to any of the cases
enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have
been at fault and to have acted negligently, unless it could prove that it observed
extraordinary diligence in the care and handling of the goods (Article 1735, supra).
Such presumption and the liability of the carrier attach until the goods are delivered
actually or constructively, to the consignee, or to the person who has a right to
receive them (Article 1736, supra), and we believe delivery to the customs
authorities is not the delivery contemplated by Article 1736, supra, in connection
with second paragraph of Article 1498, supra, because, in such a case, the goods
are then still in the hands of the Government and their owner could not exercise
dominion whatever over them until the duties are paid. In the case at bar, the
presumption against the carrier, represented appellant as its agent, has not been
successfully rebutted.
It is now contended that the Court of Appeals erred in its finding not only because it made
wrong interpretation of the law on the matter, but also because it ignored the provisions of
the bill of lading covering the shipment wherein it was stipulated that the responsibility of the
carrier is limited only to losses that may occur while the cargo is still under its custody and
control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is
responsible for the loss, destruction or deterioration of the goods it assumes to carry from
one place to another unless the same is due to any to any of the causes mentioned in Article
1734 on the new Civil Code, and that, if the goods are lost, destroyed or deteriorated, for
causes other that those mentioned, the common carrier is presumed to have been at fault or
to have acted negligently, unless it proves that it has observed extraordinary diligence in their
care (Article 1735, Idem.), and that this extraordinary liability lasts from the time the goods
are placed in the possession of the carrier until they are delivered to the consignee, or "to the
person who has the right to receive them" (Article 1736, Idem.), but these provisions only
apply when the loss, destruction or deterioration takes place while the goods are in the
possession of the carrier, and not after it has lost control of them. The reason is obvious.
While the goods are in its possession, it is but fair that it exercise extraordinary diligence in
protecting them from damage, and if loss occurs, the law presumes that it was due to its fault
or negligence. This is necessary to protect the interest the interest of the owner who is at its
mercy. The situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or
to the person who has a right to receive them", contemplated in Article 1736, because in
such case the goods are still in the hands of the Government and the owner cannot exercise
dominion over them, we believe however that the parties may agree to limit the liability of the
carrier considering that the goods have still to through the inspection of the customs

authorities before they are actually turned over to the consignee. This is a situation where we
may say that the carrier losses control of the goods because of a custom regulation and it is
unfair that it be made responsible for what may happen during the interregnum. And this is
precisely what was done by the parties herein. In the bill of lading that was issued covering
the shipment in question, both the carrier and the consignee have stipulated to limit the
responsibility of the carrier for the loss or damage that may because to the goods before they
are actually delivered by insert in therein the following provisions:
1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay,
nondelivery or misdelivery, or loss of or damage to the goods occurring while the
goods are not in the actual custody of the Carrier. . . . (Emphasis ours.)
(Paragraph 1, Exhibit "1")
2. . . . The responsibility of the Carrier in any capacity shall altogether cease and
the goods shall be considered to be delivered and at their own risk and expense in
every respect when taken into the custody of customs or other authorities. The
Carrier shall not be required to give any notification of disposition of the goods. . . .
(Emphasis ours.)
(Paragraph 12, Exhibit "1")
3. Any provisions herein to the contrary notwithstanding, goods may be . . . by
Carrier at ship's tackle . . . and delivery beyond ship's tackle shall been tirely at the
option of the Carrier and solely at the expense of the shipper or consignee.
(Paragraph 22, Exhibit "1")
It therefore appears clear that the carrier does not assume liability for any loss or damage to
the goods once they have been "taken into the custody of customs or other authorities", or
when they have been delivered at ship's tackle. These stipulations are clear. They have been
adopted precisely to mitigate the responsibility of the carrier considering the present law on
the matter, and we find nothing therein that is contrary to morals or public policy that may
justify their nullification. We are therefore persuaded to conclude that the carrier is not
responsible for the loss in question, it appearing that the same happened after the shipment
had been delivered to the customs authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

G.R. No. 80936 October 17, 1990

EASTERN SHIPPING LINES, INC., petitioner, vs.
COURT OF APPEALS, HONGKONG & SHANGHAI BANKING CORPORATION, AND
CONSOLIDATED MINES, INC., respondents.
Quisumbing, Torres & Evangelista for petitioner.
Belo, Abiera & Associates for respondent HSBC.
GUTIERREZ, JR., J.:
Assailed herein is the decision of respondent Court of Appeals in C.A.-G.R. CV08707 Hongkong & Shanghai Banking Corporation (HSBC) v. Eastern Shipping Lines, Inc.
(ESLI) dated June 30, 1987 as well as its Order dated November 24, 1987 denying herein
petitioner's Motion for Reconsideration and Supplemental Motion for Reconsideration, which
in effect affirmed the decision of the trial court holding the petitioner liable for the value of the
goods it allegedly misdelivered as well as for damages and attorney's fees.
The basic facts are as follows:
On February 24, 1980, the Nanyo Corporation of Kobe, Japan shipped a cargo consisting of
five (5) packages of supplies and materials for "1200 W x 2500 LMM Apron Feeder and 200
W x 5850 LMM Apron Feeder," (p. 22, Rollo), covered by a bill of lading. The cargo was
loaded on board the S/S Eastern Adventure destined for Manila. The vessel is operated by
herein petitioner-carrier.
The bill of lading was consigned to "Shipper's Order", with "Address Arrival Notice to
Consolidated Mines Inc. 6799 Ayala Avenue, Makati, Metro Manila, Philippines" (p. 22,
Rollo). Consolidated Mines Inc. (CMI) is one of the private respondents herein.
The cargo arrived in Manila on March 4, 1980.
A few days later, on the basis of an Undertaking for Delivery of Cargo but without the
surrender of the original bill of lading presented by CMI, petitioner-carrier released the
shipment in question to CMI.

We are unable to locate the cargo and it would appear that it has been released by
you to Consolidated Mines Inc.
We shall be grateful therefore if you will look into the matter and advise us.
(Emphasis supplied.)
Considering that there was no reply from the petitioner, HSBC wrote another demand letter
through counsel dated October 29, 1980 (Annex C of Complaint, p. 7, Original Records) in
contemplation of a legal action against ESLI should it not make good HSBC's claim.
On December 23, 1980 CMI wrote a letter (Annex C of Third Party Complaint, p. 33, Original
Records) to HSBC admitting that they received the shipment in question due to a guarantee
executed by them, and requested HSBC that legal action be held off for at least thirty (30)
days, promising to settle its account with HSBC from the funds it was expecting from
Benguet Corporation.
On January 14, 1981 the petitioner-carrier wrote a reply to HSBC (Annex D of Complaint, p.
10, Original Records) as follows:
In this connection, we deeply regret releasing the cargo without the consent of your
client. However, we are constrained to release the same in view of the consigee's
strong representation and guarantee that they will settle their obligation with the
bank. You must be aware of the fact that said consignee directly communicated
with your client bank requesting for an extension of thirty (30) days within which to
settle their account, to which we hope you will accommodate. Should consignee fail
to comply with their commitments, please advise us immediately. (Emphasis
supplied.)
CMI having failed to fulfill its promise, HSBC filed a complaint before the then Court of First
Instance of Rizal against herein petitioner praying for actual and compensatory damages in
the amount of $168,521.16 representing the value of the goods covered by the Bill of Lading,
exemplary damage in the amount deemed just by the court and P50,000 attorney's fees plus
expenses of litigation and judicial costs.
After two motions for extensions, the petitioner-carrier filed its answer with counterclaim
alleging inter alia that:
xxx xxx xxx

In said guaranty, CMI undertook to indemnify petitioner carrier "harmless from all demands,
claiming liabilities, actions and expenses" (p. 5, Rollo).
About five (5) and a half months later, or specifically on August 19, 1980, the petitioner
received from Hongkong and Shanghai Bank (HSBC) co-respondent of CMI in the case at
bar, a letter (Annex B of complaint, p. 8, Original Records) stating thus:
We refer to the above mentioned cargo and would advise that we hold title to the
goods and have in our possession the full set of original bills of lading a copy of
which is enclosed for your perusal.

That it ADMITS paragraph 7 insofar as it alleges that defendant is duly bound not
only to transport the goods entrusted to it safely but to deliver them to the person
indicated in the Bill of Lading, which obligation was religiously and faithfully
complied with by defendant, but DENIES the allegation that goods will be released
only as soon as the original Bill of Lading is presented; The truth being that it is not
mandatory for defendant to require the consignee to present the original Bill of
Lading for as long as the consignee has proof that it is the owner and besides in
this particular case, the consignee, Consolidated Mines, Inc. not only proved that it
is the owner of the cargo but it has executed a Letter of Guaranty signed by its
President, JOSE MARINO OLONDRIZ, which is hereto attached and marked as
Annex "I" and made an integral part of this answer, which not only proved

ownership over the cargo but further warrants that defendant herein is free from
whatever liability;
That it ADMIT paragraph 8 insofar as it alleges that the Bill of Lading covering the
shipment of goods in question is made to "TO SHIPPER'S ORDER" the rest of the
allegation is DENIED for lack of knowledge or information sufficient to form a belief
as to the truth or falsity of the allegation therein contained and for further reasons
stated in the Special and Affirmative Defenses;
That it DENIES paragraph 9, the truth of the matter being there was no misdelivery,
as the goods was received by the consignee and for further reasons stated in the
Special and Affirmative Defenses;

That plaintiff prior to the filing of this instant case is already fully aware of the fact
that herein answering defendant is not hable to them but still insisted in suing
defendant carrier without even impleading Consolidated Mines, Inc. who accepted
their obligation;
That speaking of negligence and bad faith, answering defendant maintains that
plaintiff is the one that is negligent and in bad faith for the following reasons:
That at the earliest time possible when plaintiff became in possession of the original
bill of lading, they did not at once notify the defendant carrier that they are the
consignee bank and that they have lien over the goods for failure of Consolidated
Mines, Inc. to pay the value of said goods. They only notify (sic) the defendant
carrier after five (5) months from the arrival of the goods in Manila;

xxx xxx xxx

SPECIAL AND AFFIRMATIVE DEFENSES
BY WAY of Special and Affirmative Defenses, defendant respect fully states:
That plaintiff has no cause of action against defendant;
That herein defendant is not aware that plaintiff is the consignee bank as the bill of
lading only bears to "SHIPPER'S ORDER" and when the shipment arrived Manila
on March 4, 1980 or even before its arrival, plaintiff did not notify defendant that
they have a lien over the shipment;
That answering defendant only became aware of that fact that plaintiff is the
consignee bank sometime on August 19, 1980 thru their letter dated August 11,
1980, to which such notice was received by the defendant several months after the
shipment in question was released to the consignee Consolidated Mines, Inc.;
That answering defendant released the shipment in question to Consolidated
Mines, Inc. pursuant to the provision of the last paragraph of Article 353 of the
Code of Commerce which provide as follows:
In case the consignee, upon receiving the goods, cannot return the bill of
lading subscribed by the carrier because of its loss or any other cause, he
must give the latter a receipt for the goods delivered, this receipt
producing the same effects as the return of the bill of lading. (Emphasis
supplied.)
That the consignee (Consolidated Mines, Inc.) in compliance with the above-cited
provision, executed a Letter of Undertaking for Delivery of cargo without
surrendering the Bills of Lading signed by its President, MR. JOSE MARINO
OLONDRIZ and the original Bill of lading will be surrendered by them later on ;
That the consignee (Consolidated Mines, Inc.) acknowledges the receipt of the
goods and likewise its obligation with the plainntiff by virtue of their letter dated
December 23, 1980 signed by its President;

Plaintiff is in bad faith in suing the carrier alone knowing fully well that it is
Consolidated Mines, Inc. who has the obligation with them and same was
acknowledged by its President per letter dated December 23, 1980 addressed to
plaintiff.
xxx xxx xxx
WHEREFORE, it is most respectfully prayed of this Honorable Court that after
proper proceedings judgment be rendered herein
a) Dismissing the complaint;
b) Ordering the plaintiff to pay defendant moral damages in the amount of
P200,000.00;
c) Sentencing plaintiff to pay defendant the sum of P50,000.00 as compensatory
damages, litigation expenses and attorney's fees and granting unto the defendant
such other reliefs which are just and equitable in the premises. (pp. 20-24, Original
Records.)
On August 15, 1981, the petitioner-carrier filed a third party complaint against CMI seeking
reimbursement from the latter of whatever pecuniary obligations the petitioner may be liable
to HSBC, as well as moral damages.
During trial, CMI filed a Motion to Stay Action in view of the pendency of involuntary
insolvency proceedings commenced against it in the meantime by its creditors which
included HSBC. This motion was denied by the trial court.
On the basis of the evidence presented by HSBC and the petitioner, as CMI failed to present
its evidence, the court on January 15, 1985 rendered judgment as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Eastern Shipping Lines, Inc., ordering the latter to pay the sum of
$168,521.16 or its equivalent in Philippine Currency representing the value of the
goods covered by the Bill of Lading plus interest thereon from the filing of the

complaint, until fully paid; P20,000.00 as and for attorney's fees and to pay the
costs.

date of shipment, describes the goods as to quantity, weight, dimensions, Identification

marks, condition, quality and value.

With respect to the Third Party Complaint, judgment is hereby rendered in favor of
the Third Party Plaintiff, Eastern Shipping Lines, Inc., and against the Third Party
Defendant, Consolidated Mines, Inc., ordering the latter to pay all the liabilities of
the former in favor of the plaintiff consisting of the value of the goods covered by
the Bill of Lading in the sum of $168,521.16 or its equivalent in Philippine Currency
plus interest from the filing of the Third Party Complaint until fully paid; attorney's
fees of P20,000.00 and to pay the costs. (p. 27, Rollo)

It should likewise be noted that the shipment consisted of machinery materials and supplies
for a mining company named in the bill of lading. In the absence of contrary instructions or at
least knowledge of other facts, the carrier is not ordinarily expected to deliver mining
equipment to an unnamed or unknown party lurking for several months.

Its motion for reconsideration having been denied, the petitioner appealed to herein public
respondent Court of Appeals. On January 30, 1987, the Court of Appeals rendered the
decision now assailed, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the appealed decision is hereby
AFFIRMED in toto. Costs against appellant. SO ORDERED. (p. 40, Rollo)
Hence, this petition for review on the following grounds:
I. The Court of appeals erred in refusing to apply the principle that "Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be caused
must bear the consequences"-on the finding that petitioner carrier "committed gross error and
negligence when it released the cargo to CMI" and without considering the fault, gross error
and negligence of respondent Hongkong Shanghai Banking Corporation." (p. 7, Rollo)
II. Although irrelevant to the application of the principle or doctrine here involved, the Court of
Appeals was unduly prejudiced by petitioner carrier's polite "apologetic admission". (p. 16,
Rollo)
The resolution of the dispute in the case at bar pivots upon the determination of who the
consignee is in the bin of lading in question.
At the outset, the Bill of Lading which was issued by the carrier but contained articles
furnished by the Shipper, shows on its face that the Shipment is consigned "TO SHIPPER'S
ORDER" with "ADDRESS ARRIVAL NOTICE TO CONSOLIDATED MINES INC. 6799
AYALA AVE. MAKATI, METRO MANILA PHILIPPINES" (Annex A of Complaint, p. 7, Original
Records). Nowhere did the Bill of Lading refer to respondent HSBC as the consignee or the
one to be notified.
The foregoing information, without more, in effect makes respondent CMI for all practical
intents and purposes the party named and ordered to receive the goods. The petitionercarrier, not being privy to any transaction between HSBC and CMI, cannot be expected to
look beyond what is contained on the face of the bill of lading in question and guess which of
the many banks in Metro Manila or some other unrevealed corporation could possibly be the
consignee. To consider otherwise would not be sound business practice as petitioner would
be forced to wait for the real owner of the goods to show up, perhaps in vain. In Macondray
and Company Inc. v. Acting Commissioner of Customs (62 SCRA 427 [1975]), it was held
that a bill of lading is ordinarily merely a convenient commercial instrument designed to
protect the importer or consignee. And in Phoenix Assurance Co., Ltd. v. United States
Lines(22 SCRA 674 [1968]), it was held that as a receipt, a bill of lading recites the place and

Other pieces of evidence found in the records indicate that the parties knew that respondent
CMI was indeed the owner of the goods in question, to wit:
Firstly, even respondent HSBC expressly admitted in its complaint that "pursuant to the BILL
OF LADING (Annex "A" hereof) the shipment was issued 'To Shipper's Order.'" (p. 2, Original
Records) It never alleged therein that it was the consignee of the shipment in question.
Similarly, by respondent HSBC's own documentary evidence, respondent CMI is the buyerowner of the shipment, to wit:
"SOLD BY ORDER AND FOR ACCOUNT AND RISK OF MESSRS. CONSOLIDATED
MINES INC. 6799 AYALA AVE. MAKATI, METRO MANILA PHILIPPINES" (Exh. A-3,
NANYO CORPORATION PACKING LIST; Exh. A-4 NANYO CORPORATION INVOICE;
Exh. A-8, NANYO CORPORATION INVOICE. (pp. 68, 71-77, Original Records)
Secondly, the Buyer referred to in the Certificate (Exh. A-5) issued by the shipper NANYO
CORPORATION should perforce refer to CMI to wit:
We hereby certify that Original Consular Invoice had been air-mailed directly to
Buyer.
We also certify that advance copies of Commercial Invoice Packing List and Bill of
Lading were airmailed directly to Buyer. (p. 73, Original Records)
Thirdly, respondent HSBC has established by its own documentary evidence, more
particularly, the CONSULAR INVOICE (Exh. A-6 dated February 25, 1980, issued in Tokyo,
Japan by the Foreign Service of the Republic of the Philippines, that the consignee of the
shipment in question is respondent CONSOLIDATED MINES, INC. as shown therein thus:
Consignee CONSOLIDATED MINES, INC.
Address 6799 AYALA AVENUE MAKATI
METRO MANILA PHILIPPINES

(p. 74, Original Records)

Hence, in view of the admissions of the respondent, exceptional circumstances allow a

deviation from the general rule regarding the surrender of the bill of lading. The rule cannot
always be absolute.
On the other hand, petitioner-carrier Eastern Shipping Lines, Inc., averred in its answer as
one of its special and affirmative defenses that respondent CMI is the consignee of the

shipment in question and offered in its formal offer of evidence before the Trial Court the
subject Bill of Lading as its "Exhibit 1". (p. 146, Original Records)
The Rules of Court provide that:
Admissibility of evidence. Evidence is admissible when it is relevant to the issue
and is not excluded by these rules. (Sec. 3, Rule 128, Rules of Court)
Judicial admissions. Admissions made by the parties in the pleadings, or in the
course of the trial or other proceedings do not require proof and cannot be
contradicted unless previously shown to have been made through palpable
mistakes. (Sec. 2, Rule 129, Rules of Court)
But assuming that CMI may not be considered consignee, the petitioner cannot be faulted for
releasing the goods to CMI under the circumstances, due to its lack of knowledge as to who
was the real consignee in view of CMI's strong representations and letter of undertaking
wherein it stated that the bill of lading would be presented later. This is precisely the situation
covered by the last paragraph of Art. 353 of the Corporation Code to wit:
If in case of loss or for any other reason whatsoever, the consignee cannot return
upon receiving the merchandise the bin of lading subscribed by the carrier, he shall
give said carrier receipt of the goods delivered this receipt producing the same
effects as the return of the bill of lading.

The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of Article 1738.
Respondent HSBC wittingly or unwittingly overlooked the fact that the same article uses the
conjunction "or" in reference to whom the goods may be delivered, that is, to the
consignee, or to the person who has a right to receive them.
That respondent HSBC is the more negligent party as against the petitioner-carrier becomes
more evident when aside from having allowed respondent Consolidated Mines, Inc. to be
designed in the bills of lading (Exhibits A, A-1 and A-2, pp. 65-67, Original Records), as the
party to be notified, it allowed the latter to be designated as the consignee in the Consular
Invoice (Exhibit A-6, p. 74, Original Records), the original of which was directly furnished to
respondent Consolidated Mines, Inc. by and as certified to by the shipper Nanyo Corporation
(Exhibit A-5, p. 73, Original Records). With such vast powers, akin to an agent of respondent
HSBC, respondent Consolidated Mines, Inc. acted within its authority, and even if it acted on
its own; consequently, respondent HSBC may not hold the petitioner came liable because
Art. 1883 of the Civil Code provides that:
If an agent acts in his own name, the principal has no right of action against the persons with
whom the agent has contracted neither have such persons against the principal.

In State Bonding and Ins. Co. Inc. v. Manila Port Service, (11 SCRA 400 [1964]), it was held
that the arrival of shipment is deemed admitted by an allegation of delivery to the consignee.

In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal.

Under the special circumstances of this case, equity favors the petitioner which proved that it
was in good faith while both respondents cannot claim the same.

The provisions of this article shall be understood to be without prejudice to the actions
between the principal and agent.

While the goods in question were released on March 4, 1980 the records show that HSBC
received the original bill of lading, as per testimony of its witness Ederlina Crisostomo (TSN,
p. 29, July 13, 1982), only on April 1980 or long after the goods had been released. This
circumstance goes against the claims of HSBC.

For almost six months from the arrival of the goods HSBC did not do anything to claim the
cargo. It could not possibly be left around lying Idle when on the face of the bill of lading,
there was a named owner to be notified.

Thus HSBC in its original demand letter stated, "We are unable to locate the cargo and it
would appear that it has been released by you to Consolidated Mines, Inc." (Annex B of
Complaint, p. 8, Original Records). This proves that it had foreknowledge of the prior release
to CMI.
And to make things worse, HSBC, despite CMI's admission that it received the goods, sued
only the petitioner-carrier while at the same time claiming for the value of the goods in the
involuntary insolvency proceedings of CMIwhich the Bank itself, together with others,
initiated. Only later developments led to this case.
Notwithstanding that respondent HSBC admits even in its memorandum filed with the trial
court that Consolidated Mines, Inc. is the consignee (p. 168, Original Records), yet HSBC
pinpoints liability to the petitioner carrier by relying on the provisions of Article 1736 of the
Civil Code of the Philippines which provides that:

On the other hand, CMI secured the release of the goods through misrepresentation before
the petitioner-carrier without settling its account with HSBC and thereafter did not bother to
present evidence before the trial court, leaving the petitioner holding an empty bag as it were.
These circumstances also prove bad faith on the part of CMI.
Under the exceptional circumstances and applying especially strong considerations of equity,
the petitioner did not commit any fault sufficient to render it liable to HSBC. On the contrary, it
was HSBC and CMI who were obviously in bad faith in dealing with the petitioner-carrier.
WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of
Appeals dated June 30, 1987 is SET ASIDE as well as its orders dated November 24, 1987
denying the petitioners's motion for reconsideration. The complaint before the trial court is
dismissed for lack of merit but without prejudice to Hongkong & Shanghai Banking
Corporation pursuing its claims herein against Consolidated Mines, Inc. in the proper
proceedings.
SO ORDERED.

[G.R. No. 125524. August 25, 1999]

BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner, vs.COURT OF APPEALS, CHINA OCEAN SHIPPING CO.,
and/or WALLEM PHILIPPINES SHIPPING, INC., respondents.
DECISION
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and
style Ben-Mac Enterprises, shipped on board the vessel Nen Jiang, owned and operated by
respondent China Ocean Shipping Co., through local agent respondent Wallem Philippines
Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of watermelons valued at US$5,950.00
covered by Bill of Lading No. HKG 99012 and exported through Letter of Credit No. HK
1031/30 issued by National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and
1,611 boxes of fresh mangoes with a value of US$14,273.46 covered by Bill of Lading No.
HKG 99013 and exported through Letter of Credit No. HK 1032/30 also issued by PAKISTAN
BANK. The Bills of Lading contained the following pertinent provision: "One of the Bills of
Lading must be surrendered duly endorsed in exchange for the goods or delivery
order."[1] The shipment was bound for Hongkong with PAKISTAN BANK as consignee and
Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and
commercial invoices were submitted to petitioner's depository bank, Consolidated Banking
Corporation (hereinafter SOLIDBANK), which paid petitioner in advance the total value of the
shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly
to GPC, not to PAKISTAN BANK, and without the required bill of lading having been
surrendered. Subsequently, GPC failed to pay PAKISTAN BANK such that the latter, still in
possession of the original bills of lading, refused to pay petitioner through
SOLIDBANK. Since SOLIDBANK already pre-paid petitioner the value of the shipment, it
demanded payment from respondent WALLEM through five (5) letters but was
refused. Petitioner was thus allegedly constrained to return the amount involved to
SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of
US$20,223.46 or its equivalent of P546,033.42 from respondents before the Regional Trial
Court of Manila, based on delivery of the shipment to GPC without presentation of the bills of
lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation
of the bills of lading and bank guarantee per request of petitioner himself because the
shipment consisted of perishable goods. The telex dated 5 April 1989 conveying such
request read AS PER SHPRS REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO
RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L[2] and bank guarantee since for
prepaid shipt ofrt charges already fully paid our end x x x x[3]
Respondents explained that it is a standard maritime practice, when immediate delivery
is of the essence, for the shipper to request or instruct the carrier to deliver the goods to the
buyer upon arrival at the port of destination without requiring presentation of the bill of lading

as that usually takes time. As proof thereof, respondents apprised the trial court that for the
duration of their two-year business relationship with petitioner concerning similar shipments
to GPC deliveries were effected without presentation of the bills of lading.[4]Respondents
advanced next that the refusal of PAKISTAN BANK to pay the letters of credit to
SOLIDBANK was due to the latter's failure to submit a Certificate of Quantity and
Quality. Respondents counterclaimed for attorneys fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the
following amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full payment;
(2) P10,000.00 as attorney's fees; and, (3) the costs. The counterclaims were dismissed for
lack of merit.[5] The trial court opined that respondents breached the provision in the bill of
lading requiring that "one of the Bills of Lading must be surrendered duly endorsed in
exchange for the goods or delivery order," when they released the shipment to GPC without
presentation of the bills of lading and the bank guarantee that should have been issued by
PAKISTAN BANK in lieu of the bills of lading. The trial court added that the shipment should
not have been released to GPC at all since the instruction contained in the telex was to
arrange delivery to the respective consignees and not to any party. The trial court observed
that the only role of GPC in the transaction as notify party was precisely to be notified of the
arrival of the cargoes in Hongkong so it could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different
manner. According to it, as established by previous similar transactions between the parties,
shipped cargoes were sometimes actually delivered not to the consignee but to notify party
GPC without need of the bills of lading or bank guarantee.[6] Moreover, the bills of lading were
viewed by respondent court to have been properly superseded by the telex instruction and to
implement the instruction, the delivery of the shipment must be to GPC, the real
importer/buyer of the goods as shown by the export invoices,[7] and not to PAKISTAN BANK
since the latter could very well present the bills of lading in its possession; likewise, if it were
the PAKISTAN BANK to which the cargoes were to be strictly delivered it would no longer be
proper to require a bank guarantee. Respondent court noted that besides, GPC was listed
as a consignee in the telex. It observed further that the demand letter of petitioner to
respondents never complained of misdelivery of goods. Lastly, respondent court found that
petitioners claim of having reimbursed the amount involved to SOLIDBANK was
unsubstantiated. Thus, on 13 March 1996 respondent court set aside the decision of the trial
court and dismissed the complaint together with the counterclaims.[8] On 5 July 1996
reconsideration was denied.[9]
Petitioner submits that the fact that the shipment was not delivered to the consignee as
stated in the bill of lading or to a party designated or named by the consignee constitutes a
misdelivery thereof. Moreover, petitioner argues that from the text of the telex, assuming
there was such an instruction, the delivery of the shipment without the required bill of lading
or bank guarantee should be made only to the designated consignee, referring to PAKISTAN
BANK.
We are not persuaded. The submission of petitioner that the fact that the shipment
was not delivered to the consignee as stated in the Bill of Lading or to a party designated or
named by the consignee constitutes a misdelivery thereof is a deviation from his cause of
action before the trial court. It is clear from the allegation in his complaint that it does not
deal with misdelivery of the cargoes but of delivery to GPC without the required bills of lading
and bank guarantee 6. The goods arrived in Hongkong and were released by the defendant Wallem directly to
the buyer/notify party, Great Prospect Company and not to the consignee, the National Bank
of Pakistan, Hongkong, without the required bills of lading and bank guarantee for the
release of the shipment issued by the consignee of the goods x x x x[10]

Even going back to an event that transpired prior to the filing of the present case or
when petitioner wrote respondent WALLEM demanding payment of the value of the cargoes,
misdelivery of the cargoes did not come into the picture We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of
Lading No. 99012 and 99013 with a total value of US$20,223.46 were released to Great
Prospect, Hongkong without the necessary bank guarantee. We were further informed that
the consignee of the goods, National Bank of Pakistan, Hongkong, did not release or
endorse the original bills of lading. As a result thereof, neither the consignee, National Bank
of Pakistan, Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our
client for the goods x x x x[11]
At any rate, we shall dwell on petitioners submission only as a prelude to our
discussion on the imputed liability of respondents concerning the shipped goods. Article
1736 of the Civil Code provides Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.[12]
We emphasize that the extraordinary responsibility of the common carriers lasts until
actual or constructive delivery of the cargoes to the consignee or to the person who has a
right to receive them. PAKISTAN BANK was indicated in the bills of lading as consignee
whereas GPC was the notify party. However, in the export invoices GPC was clearly named
as buyer/importer. Petitioner also referred to GPC as such in his demand letter to
respondent WALLEM and in his complaint before the trial court. This premise draws us to
conclude that the delivery of the cargoes to GPC as buyer/importer which, conformably with
Art. 1736 had, other than the consignee, the right to receive them[13] was proper.
The real issue is whether respondents are liable to petitioner for releasing the goods to
GPC without the bills of lading or bank guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering
the cargoes to GPC without the bills of lading and bank guarantee. The telex instructed
delivery of various shipments to the respective consignees without need of presenting the bill
of lading and bank guarantee per the respective shippers request since for prepaid shipt ofrt
charges already fully paid. Petitioner was named therein as shipper and GPC as consignee
with respect to Bill of Lading Nos. HKG 99012 and HKG 99013. Petitioner disputes the
existence of such instruction and claims that this evidence is self-serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as
buyer/importer for around two (2) or three (3) years already. When mangoes and
watermelons are in season, his shipment to GPC using the facilities of respondents is twice
or thrice a week. The goods are released to GPC. It has been the practice of petitioner to
request the shipping lines to immediately release perishable cargoes such as watermelons
and fresh mangoes through telephone calls by himself or his people. In transactions
covered by a letter of credit, bank guarantee is normally required by the shipping lines prior
to releasing the goods. But for buyers using telegraphic transfers, petitioner dispenses with
the bank guarantee because the goods are already fully paid. In his several years of
business relationship with GPC and respondents, there was not a single instance when the
bill of lading was first presented before the release of the cargoes. He admitted the
existence of the telex of 3 July 1989 containing his request to deliver the shipment to the

consignee without presentation of the bill of lading[14] but not the telex of 5 April 1989
because he could not remember having made such request.
Consider pertinent portions of petitioners testimony Q: Are you aware of any document which would indicate or show that your request to
the defendant Wallem for the immediate release of your fresh fruits, perishable
goods, to Great Prospect without the presentation of the original Bill of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested the
immediate release of the cargo because there was immediate payment.
Q

And you are referring, therefore, to this copy Telex release that you mentioned where
your Companys name appears Ben-Mac?

Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading
referring to SKG (sic) 93023 and 93026 with Great Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate release of the goods
when they are perishable. I thought Wallem Shipping Lines is not neophyte in the
business. As far as LC is concerned, Bank guarantee is needed for the immediate
release of the goods x x x x[15]
Q: Mr. Witness, you testified that it is the practice of the shipper of the perishable goods
to ask the shipping lines to release immediately the shipment. Is that correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines to release the
perishable goods to the importer of goods without a Bill of Lading or Bank
guarantee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the perishable goods
by the shipping lines to the importer without the Bank guarantee and without the Bill
of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully paid x x x x
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can
you recall that any of your shipment was released to Great Prospect by Wallem
through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous shipments of your
goods through Wallem, you requested Wallem to release immediately your
perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods x x x x[16]

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods
immediately even without the presentation of OBL, how do you course it?

In view of petitioners utter failure to establish the liability of respondents over the
cargoes, no reversible error was committed by respondent court in ruling against him.

A: Usually, I call up the Shipping Lines, sir x x x x[17]

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of

13 March 1996 dismissing the complaint of petitioner Benito Macam and the counterclaims of
respondents China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as
its resolution of 5 July 1996 denying reconsideration, is AFFIRMED.

Q: You also testified you made this request through phone calls. Who of you talked
whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your people to call?
(sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem x x x x[18]
Against petitioners claim of not remembering having made a request for delivery of
subject cargoes to GPC without presentation of the bills of lading and bank guarantee as
reflected in the telex of 5 April 1989 are damaging disclosures in his testimony. He declared
that it was his practice to ask the shipping lines to immediately release shipment of
perishable goods through telephone calls by himself or his people. He no longer required
presentation of a bill of lading nor of a bank guarantee as a condition to releasing the goods
in case he was already fully paid. Thus, taking into account that subject shipment consisted
of perishable goods and SOLIDBANK pre-paid the full amount of the value thereof, it is not
hard to believe the claim of respondent WALLEM that petitioner indeed requested the
release of the goods to GPC without presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was to deliver the shipment to respective
consignees. And so petitioner argues that, assuming there was such an instruction, the
consignee referred to was PAKISTAN BANK. We find the argument too
simplistic. Respondent court analyzed the telex in its entirety and correctly arrived at the
conclusion that the consignee referred to was not PAKISTAN BANK but GPC There is no mistake that the originals of the two (2) subject Bills of Lading are still in the
possession of the Pakistani Bank. The appealed decision affirms this fact. Conformably, to
implement the said telex instruction, the delivery of the shipment must be to GPC, the notify
party or real importer/buyer of the goods and not the Pakistani Bank since the latter can very
well present the original Bills of Lading in its possession. Likewise, if it were the Pakistani
Bank to whom the cargoes were to be strictly delivered, it will no longer be proper to require
a bank guarantee as a substitute for the Bill of Lading. To construe otherwise will render
meaningless the telex instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof to the buyer/importer is essentially a factor to reckon
with. Besides, GPC is listed as one among the several consignees in the telex (Exhibit 5-B)
and the instruction in the telex was to arrange delivery of A/M shipment (not any party) to
respective consignees without presentation of OB/L and bank guarantee x x x x[19]
Apart from the foregoing obstacles to the success of petitioners cause, petitioner failed
to substantiate his claim that he returned to SOLIDBANK the full amount of the value of the
cargoes. It is not far-fetched to entertain the notion, as did respondent court, that he merely
accommodated SOLIDBANK in order to recover the cost of the shipped cargoes from
respondents. We note that it was SOLIDBANK which initially demanded payment from
respondents through five (5) letters. SOLIDBANK must have realized the absence of privity
of contract between itself and respondents. That is why petitioner conveniently took the
cudgels for the bank.

SO ORDERED.

G.R. No. L-57582 August 24, 1984

Both defendants are ordered to pay the costs.

METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), petitioner-appellant, vs.

COURT OF APPEALS and CHARTER INSURANCE CO., INC., respondents-appellees.

Both defendants also are jointly and severally liable to pay plaintiff P2,000.00 as
attorney's fees. 2

Silverio B. De Leon for petitioner-appellant.

Manuel L. Villamayor, Ramirez, Villamayor & Associates for respondent Charter Insurance
Co., Inc.
MELENCIO-HERRERA, J.:
Petitioner seeks a review of the Decision, and Resolution denying reconsideration, of the
then Court of Appeals in CA-G.R. No. 63087-R entitled "The Charter Insurance Co., Inc. vs.
Universal Shipping Lines, Inc. and E. Razon, Inc.".
The following are the established facts: Sometime in April 1973, Union Sales Marketing
Corporation (UNION) ordered from Union Carbide of Antwerp Belgium, 99,540 kilograms of
Low Density Polyethylene, valued at US $.245 per kilogram or a total purchase price of US
$24,417.30 (Exhibits "D" & "F"), at the conversion rate of P6.848 to a US Dollar (Exhibit "E ").
The shipment was packed in 4,000 bags of 25 net kilograms, more or less, for each bag, and
was loaded at Antwerp Belgium, in good order condition on board the S/S Dingalan Bay",
owned and operated by Universal Shipping Lines, Inc. (CARRIER) and consigned to UNION
in Manila. The shipment was covered by a Marine Risk Note (Exhibit "B ") issued by Charter
Insurance Co. (INSURER) for P212,738.17 against all risks. The CARRIER arrived in Manila
on June 22, 1073 and arrastre services were handled by E. Razon, Inc. (ARRASTRE), now
called Metro Port Service, Inc.

On appeal by the CARRIER and ARRASTRE, the then Court of Appeals, on March 23,1981,
absolved the CARRIER of any and all liability and held the ARRASTRE solely liable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from
is hereby MODIFIED as follows:
1. Defendant E. Razon, Inc., is hereby directed to pay to plaintiff, the total sum of
P22,049.88, plus interest of 12% interest per annum from July 1, 1974 until the sum
is fully paid;
2. Dismissing the complaint as against defendant Universal Shipping Lines, Inc.;
3. Defendant E. Razon, Inc., to pay costs under the complaint of plaintiff;
4. Plaintiff to pay costs by reason of its complaint against defendant Universal
Shipping Lines, Inc.
Appellant E. Razon to pay costs of this appeal on its appeal against plaintiffappellant;
Appellee to pay costs of this appeal to appellant Universal Shipping Lines, Inc. 3
Reconsideration filed by the ARRASTRE was denied by the Appellate Court. 4

It is not disputed that out of the 4,000 bags, 1,050 bags were received by the consignee
UNION in bad order condition (Exhibits "I" to "I-5"; Exhibits "22" to "27"). 1 As a consequence
of the damage and loss, the INSURER paid UNION the sum of P35,709.11 in full settlement
of the claim, and the INSURER became the subrogee of all of UNION's rights to recover from
the parties concerned.

Before us now, the ARRASTRE assails the appealed judgment in that 1) it did not give
credence and belief to the ARRASTRE's Bad Order Certificates (Exhibits "22" to "27"
Razon), and 2) it erred in holding the ARRASTRE liable.5

Both defendants disclaimed liability, each one attributing the loss to the other.

Ordinarily, in a Petition for Review on Certiorari, only questions of law may be raised. 6 And,
this Court has held in a number of cases that findings of fact by the Court of Appeals are, in
general, conclusive on the Supreme Court when supported by the evidence on record. 7 The
rule is not absolute, however, and allows of exceptions, which we find present in the case at
bar in that respondent Court's findings of facts are contrary to those of the Trial Court and are
contradicted by the evidence on record. 8

In its Decision, the Trial Court allocated payment of liabilities as follows:

In absolving the CARRIER, respondent Court stated:

On July 1, 1974, the INSURER sued for damages with the then Court of First Instance of
Manila against the CARRIER and the ARRASTRE in the amount of P35,709.1 1, in addition
to exemplary damages and attorney's fees.

WHEREFORE, defendant Universal Shipping Lines, Inc., is ordered to pay plaintiff

the amount of P12,285.94 plus 12% interest per annum from July 1, 1974 until full
payment thereof.
Defendant E. Razon, Inc., is ordered to pay plaintiff the amount of P9,763.94 plus
12% interest per annum from July 1, 1974 until full payment thereof.

When the shipment was discharged from the carrying vessel, there were
443 bags of shipment which were broken at the ends. in other words, only
the end-portions of the 443 bags were torn or broken, without any
showing that any portion of the contents of these 443 bags was spilled or
spoiled. ... and no loss or spoilage of the shipment having been proved or
shown to have occurred when the shipment was under the care and
custody of the vessel, then the vessel can and should not be held liable to

answer for the loss of any part of it that was found upon the discharge of
the shipment from the Arrastre Operator's care and custody into the
consignee's Broker.
...The trial court found the value of the losses at P22,049.88. Now, since
the losses are shown to have occurred after the Arrastre Operator had
received the entire shipment of 4,000 bags from the vessel, then it can be
safely assumed that the losses occurred while the shipment was in the
care and custody of the Arrastre Operator. The appellant E. Razon, Inc.,
should, therefore, be liable to pay for the whole claim. 9
The foregoing completely disregards the evidence of the CARRIER and the ARRASTRE that
619 bags were discharged by the CARRIER to the ARRASTRE in bad order condition, as
evidenced by the original and duplicate copies of the Cargo Receipts issued by the
CARRIER to the ARRASTRE and signed by their respective representatives (Exhibits 1DDDD to 1-HHHH Exhibits "2" to "2-D"-Razon). 10 The condition of the 619 bags before the
turnover to the ARRASTRE from the CARRIER was loss or spoilage of up to 50%, as
reflected in the Survey of Bad Order Cargoes, signed by the CARRIER and ARRASTRE
representatives (Exhibits "1" to "I-D" Razon; Exhibits "2" to "2- Universal). 11 Accordingly, the
Trial Court held the CARRIER liable only for the value of a total of 443 bags, as this is the
"evidence of the plaintiff (INSURER), at 16.8209 kilograms per bag, 12 less than the actual
weight of 25 kilograms net per bag (Exhibit "D"; Exhibits "I" to "I-C"-Razon) due to some
recovery of spillage, or a total liability of P12,285.94.
Since 619 bags were discharged from the CARRIER already in bad order condition, it follows
that the remaining 431 bags were damaged while in the ARRASTRE's custody for which it
should be held liable. However, since the Trial Court computed the liability of the ARRASTRE
at 351 bags, notwithstanding the ARRASTRE's admission that "80 bags were not included in
the bad order cargo certificate, 13 and the INSURER did not appeal said award by the Trial
Court in its desire to have the case terminated soonest, 14 the INSURER may not, in this
appeal, have the judgment modified. 15 The liability of the ARRASTRE for P9,763.94 fixed
by the Trial Court is thus in order.
WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE, and that of the Court of First Instance of Manila, Branch XI, is
hereby reinstated. No costs.
SO ORDERED.

G.R. No. 83613 February 21, 1990

FIREMAN'S FUND INSURANCE CO., petitioner, vs.
METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), respondent.
Dollete, Blanco, Ejercito & Associates for petitioner.
Cruz, Durian, Agabin, Atienza, Alday & Tuason for respondent.

There was heavy damage to the cargo as the parts of the machineries were broken, denied,
cracked and no longer useful for their purposes.
The value of the damage was estimated at P187,500.00 which amount was paid by the
petitioner insurance company to the consignee, Vulcan Industrial and Mining Corporation.
The petitioner, under its subrogation rights, then filed a suit against Maersk Line, Compania
General de Tabacos (as agent) and E. Razon, Inc., for the recovery of the amount it paid the
assured under the covering insurance policy. On October 26, 1980, the trial court rendered
judgment, the decretal portion of which reads as follows:

GUTIERREZ, JR., J.:

xxx xxx xxx
This is a petition for review of the decision and resolution denying reconsideration of the
Court of Appeals in CA-G.R. CV No. 00673 entitled "Fireman's Fund Insurance Co. v. Maersk
Line, Compaia General de Tabacos de Filipinas and E. Razon, Inc."
The facts are as follows:
Vulcan Industrial and Mining Corporation imported from the United States several
machineries and equipment which were loaded on board the SIS Albert Maersk at the port of
Philadelphia, U.S.A., and transhipped for Manila through the vessel S/S Maersk Tempo.
The cargo which was covered by a clean bill of lading issued by Maersk Line and Compania
General de Tabacos de Filipinas (referred to as the CARRIER) consisted of the following:
xxx xxx xxx
1 piece truck mounted core drill
1 piece trailer mounted core drill
1 (40') container of 321 pieces steel tubings
1 (40') container of 170 pieces steel tubings
1 (40') container of 13 cases, 3 crates, 2 pallets and 26 mining machinery parts.
(Rollo, p. 4)
The shipment arrived at the port of Manila on June 3, 1979 and was turned over complete
and in good order condition to the arrastre operator E. Razon Inc. (now Metro Port Service
Inc. and referred to as the ARRASTRE).
At about 10:20 in the morning of June 8, 1979, a tractor operator, named Danilo Librando
and employed by the ARRASTRE, was ordered to transfer the shipment to the Equipment
Yard at Pier 3. While Librando was maneuvering the tractor (owned and provided by Maersk
Line) to the left, the cargo fell from the chassis and hit one of the container vans of American
President Lines. It was discovered that there were no twist lock at the rear end of the chassis
where the cargo was loaded.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants by ordering the latter to pay, jointly and severally, the plaintiff the sum of
P187,500.00, with legal interest thereon from August 29, 1980 until full payment
thereof.
Defendants are also ordered to pay, in solidum, the sum of P10,000.00 as attorney's
fees to the plaintiff, and to pay the costs of this suit.
There shall be no award for exemplary damages in favor of the plaintiff, for the reason
that defendants are probably acting in good faith in resisting the complaint. (Rollo, pp.
45-46)
All the defendants appealed to the Court of Appeals. Eventually, Maersk Line and Compania
General de Tabacos negotiated with the petitioner for the settlement of the latter's claim and
no longer pursued their appeal.
On the appeal of the ARRASTRE, the Court of Appeals rendered a decision with the
following dispositive portion:
WHEREFORE, foregoing premises considered, the decision of the court a quo insofar
as herein defendant-appellant is concerned is REVERSED It is hereby ordered that the
complaint against herein defendant-appellant be dismissed. No costs. (Rollo, p. 50)
Reconsideration of the decision was denied in a resolution dated May 23, 1988.
Hence, the present recourse.
The petitioner raises this lone assignment of error:
THE HONORABLE COURT OF APPEALS ERRED IN LIMITING LIABILITY SOLELY ON
CO-DEFENDANT MAERSK LINES, CONTRARY TO THE FINDINGS OF FACTS OF THE
TRIAL COURT A QUO AND OTHER FACTORS SHOWING CLEAR JOINT LIABILITY OF
DEFENDANTS IN SOLIDUM.
There is merit in this petition.

This Court has held in a number of cases that findings of fact of the Court of Appeals are, in
general, conclusive on the Supreme Court when supported by the evidence on record. The
rule is not absolute, however, and allows exceptions, which we find present in the case at
bar. The respondent court's findings of facts are contrary to those of the trial court and
appear to be contradicted by the evidence on record thus calling for our review. (Metro Port
Service, Inc. v. Court of Appeals, 131 SCRA 365 [1984]).
In absolving the ARRASTRE, the respondent Court ruled that although Librando was an
employee of the ARRASTRE, since he was included in its payroll, he was technically and
strictly an employee of Maersk Line in this particular instance when he drove the tractor
admittedly owned by the foreign shipping line. The Court ruled that he received instructions
not from Metro Port but from Maersk Line relative to this job. He was performing a duty that
properly pertained to Maersk Line which, for lack of a tractor operator, had to get or hire from
the ARRASTRE as per their management contract. Nevertheless, Librando was not remiss in
his duty as tractor-driver considering that the proximate and direct cause of the damage was
the absence of twist locks in the rear end of the chassis which Maersk Line failed to provide.
The respondent court thereby placed the entire burden of liability on the owner of the Chassis
which in this case was the foreign shipping company, Maersk Line.
The foregoing conclusion disregarded the pertinent findings of facts made by the lower court
which are supported by the evidence on record, to wit:
1. The accident occurred while the cargoes were in the custody of the arrastre operator.
2. The tractor operator was an employee of the arrastre operator.
xxx xxx xxx
4. By the management contract inasmuch as the foreign shipping company has no
tractor operator in its employ, the arrastre provided the operator.
xxx xxx xxx
8. It was likewise the responsibility of the tractor operator, an employee of the arrastre
operator to inspect the chassis and tractor before driving the same, but which obligation
the operator failed to do.
9. It was also the responsibility of the supervisor in the employ of the arrastre operator
to see that their men complied with their respective tasks, which included the
examination if the chassis has twist lock. (Rollo, pp. 44-45)
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]). The
relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil.
253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged
with and obligated to deliver the goods in good condition to the consignee.

In general, the nature of the work of an arrastre operator covers the handling of cargoes at
piers and wharves (Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue,
13 SCRA 357 [1965]). This is embodied in the Management Contract drawn between the
Bureau of Customs and E. Razon Inc., as the Arrastre Operator. The latter agreed to bind
itself, to wit:
CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES
1. Responsibility and Liability for Losses and Damages;
Claims. The CONTRACTOR shall, at its own expense handle all merchandise in the
piers and other designated places and at its own expense perform all work undertaken by
it hereunder diligently and in skillful workmanlike and efficient manner; That the
CONTRACTOR shall be solely responsible as an independent CONTRACTOR, and
hereby agrees to accept liability and to promptly pay to the s hip company, consignee,
consignor or other interested party or parties for the loss, damage, or non-delivery of
cargoes to the extent of the actual invoice value of each package which in no case shall
be more than Three Thousand Five Hundred Pesos (P3,500.00) for each package unless
the value of the importation is otherwise specified or manifested or communicated in
writing together with the invoice value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge of the goods, as
well as all damage that may be suffered on account of loss, damage, or destruction of
any merchandise while in custody or under the control of the CONTRACTOR in any pier,
shed, warehouse, facility; or other designated place under the supervision of the
BUREAU, but said CONTRACTOR shall not be responsible for the condition of the
contents of any package received nor for the weight, nor for any loss, injury or damage to
the said cargo before or while the goods are being received or remained on the piers,
sheds, warehouse or facility if the loss, injury or damage is caused by force majeure, or
other cause beyond the CONTRACTORS control or capacity to prevent or remedy; ...
xxx xxx xxx
The CONTRACTOR shall be solely responsible for any and all injury or damage that may
arise on account of the negligence or carelessness of the CONTRACTOR, its agent or
employees in the performance of the undertaking by it to be performed under the terms of
the contract, and the CONTRACTOR hereby agree to and hold the BUREAU at all times
harmless therefrom and whole or any part thereof. (Original Records, pp. 110-112;
Emphasis supplied)
To carry out its duties, the ARRASTRE is required to provide cargo handling equipment
which includes among others trailers, chassis for containers. In some cases, however, the
shipping line has its own cargo handling equipment.
In this particular instance, the records reveal that Maersk Line provided the chassis and the
tractor which carried the carried the subject shipment. It merely requested the ARRASTRE to
dispatch a tractor operator to drive the tractor inasmuch as the foreign shipping line did not
have any truck operator in its employ. Such arrangement is allowed between the ARRASTRE
and the CARRIER pursuant to the Management Contract. It was clearly one of the services
offered by the ARRASTRE. We agree with the petitioner that it is the ARRASTRE which had
the sole discretion and prerogative to hire and assign Librando to operate the tractor. It was
also the ARRASTRE's sole decision to detail and deploy Librando for the particular task from

among its pool of tractor operators or drivers. It is, therefore, inacurrate to state that Librando
should be considered an employee of Maersk Line on that specific occasion.

A No, sir, because I presumed that it had twist locks and I was confident that it had
twist locks.

Handling cargo is mainly the s principal work so its driver/operators, "cargadors", or

employees should observe the stand" and indispensable measures necessary to prevent
losses and damage to shipments under its custody. Since the ARRASTRE offered its drivers
for the operation of tractors in the handling of cargo and equipment, then the ARRASTRE
should see to it that the drivers under its employ must exercise due diligence in the
performance of their work. From the testimonies of witnesses presented, we gather that
driver/operator Librando was remiss in his duty. Benildez Cepeda, an arrastre-investigator of
Metro Port admitted that Librando as tractor-operator should first have inspected the chassis
and made sure that the cargo was securely loaded on the chassis. He testified:

Q As a matter of procedure and according to you, you examined the tractor, do you not
make it a practice to examine whether the chassis had any twist locks?

xxx xxx xxx

Q My question is in your investigation report including enclosures, the principal reason
was that the chassis has no rear twist lock?
A Yes, sir.
Q Did you investigate whether the driver Librando inspected the the truck before he
operated the same whether there was rear twist lock or not?
A I have asked him about that question whether he had inspected the has any rear
twist lock and the answer he did not inspect, sir.
Q As a operator, do you agree with me that it is the duty also of Librando to see to it
that the truck is in good condition and fit to travel, is that correct?

A I used to do that but in that particular instance I thought it had already its twist locks.
(p. 8, T.S.N., October 5, 1981)
It is true that Maersk Line is also at fault for not providing twist locks on the chassis.
However, we find the testimony of Manuel Heraldez who is the Motor Pool General
Superintendent of Metro Port rather significant. On cross-examination, he stated that:
Q In your experience, Mr. witness, do you know which is ahead of the placing of the
container van or the placing of the twist lock on the chassis?
A The twist lock is already permanently attached on the chassis, sir.
Q Earlier, you mentioned that you cannot see the twist lock if the chassis is loaded,
correct?
A Yes, sir.
Q Do you what to impress upon the Honorable Court that, by mere looking at a
loaded chassis, the twist lock cannot be seen by the naked eye? Because the van
contained a hole in which the twist lock thus entered inside the hold and locked
itself. It is already loaded. So. you cannot no longer see it.

A Yes, sir.

Q But if you closely examine this chassis which has a load of container van. You
can see whether a twist lock is present or not?

Q And as a tractor operator it is his duty to see to it that the van mounted on top of the
tractor was properly is that correct?

A Yes, sir. A twist lock is present.

A Yes, sir. (At pp. 18-20, T.S.N., February 17, 1982)

Q In other words, if the driver of this tractor closely examined this van, he could
have detected whether or not a twist lock is present?

Again Danilo Librando also admitted that it was usually his practice to inspect not only the
tractor but the chassis as well but failed to do so in this particular instance.
xxx xxx xxx
Q You mentioned of the absence of a twist lock. Will you tell us where is this twist lock
supposed to be located?
A At the rear end of the chassis.
Q Before you operated the tractor which carried the mounted cord drill truck and trailer
did you examine if the chasiss had any twist locks?

A Yes, sir. (pp. 33-35, T.S.N., March 23, 1982; Emphasis supplied)
Whether or not the twist lock can be seen by the naked eye when the cargo has been loaded
on the chassis, an efficient and diligent tractor operator must nevertheless check if the cargo
is securely loaded on the chassis.
We, therefore, find Metro Port Service Inc., solidarily liable in the instant case for the
negligence of its employee. With respect to the limited liability of the ARRASTRE, the records
disclose that the value of the importation was relayed to the arrastre operator and in fact
processed by its chief claims examiner based on the documents submitted.
WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE and that of the Court of First Instance of Manila, 6th Judicial
District, Branch II is REINSTATED. No costs. SO ORDERED.

G.R. No. L-16598

October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant, vs.

MACONDRAY & COMPANY, INC., defendant-appellant.
Fisher & DeWitt for plaintiff-appellant.
Wolfson, Wolfson & Schwarzkopf for defendant-appellant.

(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the
proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks, in
payment of plaintiff's claim, which tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered
judgment in favor of the plaintiff against the defendant for the sum of P226.02, this being the
invoice value of the clocks in question plus the freight and insurance thereon, with legal
interest thereon from November 20, 1919, the date of the complaint, together with costs.
From that judgment both parties appealed to this court.

JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover the
sum of P240 together with interest thereon. The facts are stipulated by the parties, and are,
briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on
board of steamship Bolton Castle, then in the harbor of New York, four cases of
merchandise one of which contained twelve (12) 8-day Edmond clocks properly
boxed and marked for transportation to Manila, and paid freight on said clocks from
New York to Manila in advance. The said steampship arrived in the port of Manila
on or about the 10th day of September, 1919, consigned to the defendant herein as
agent and representative of said vessel in said port. Neither the master of said
vessel nor the defendant herein, as its agent, delivered to the plaintiff the aforesaid
twelve 8-day Edmond clocks, although demand was made upon them for their
delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New
York was P22 and the market value of the same in the City of Manila at the time
when they should have been delivered to the plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master of the said
steamship Bolton Castlecontained, among others, the following clauses:
1. It is mutually agreed that the value of the goods receipted for above
does not exceed $500 per freight ton, or, in proportion for any part of a
ton, unless the value be expressly stated herein and ad valorem freight
paid thereon.
9. Also, that in the event of claims for short delivery of, or damage to,
cargo being made, the carrier shall not be liable for more than the net
invoice price plus freight and insurance less all charges saved, and any
loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3
cubic feet, and the freight ton value thereof was $1,480, U. S. currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared by the
plaintiff on the aforesaid clocks, and no ad valorem freight was paid thereon.

The plaintiff-appellant insists that it is entitled to recover from the defendant the market value
of the clocks in question, to wit: the sum of P420. The defendant-appellant, on the other
hand, contends that, in accordance with clause 1 of the bill of lading, the plaintiff is entitled to
recover only the sum of P76.36, the proportionate freight ton value of the said clocks. The
claim of the plaintiff is based upon the argument that the two clause in the bill of lading above
quoted, limiting the liability of the carrier, are contrary to public order and, therefore, null and
void. The defendant, on the other hand, contends that both of said clauses are valid, and the
clause 1 should have been applied by the lower court instead of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations
inserted in the bill of lading, limit its liability for the loss of or damage to the cargo to an
agreed valuation of the latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to an
agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher rate of freight. According to an
almost uniform weight of authority, the first and second kinds of stipulations are invalid as
being contrary to public policy, but the third is valid and enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of
February 13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express
Co., 4 McAr., 124; 48 Am. Rep., 742) support the proposition that the first and second
stipulations in a bill of lading are invalid which either exempt the carrier from liability for loss
or damage occasioned by its negligence, or provide for an unqualified limitation of such
liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that
the present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting
the liability of the carrier to a certain amount unless the shipper declares a higher value and
pays a higher rate of freight, is valid and enforceable. This proposition is supported by a
uniform lien of decisions of the Supreme Court of the United States rendered both prior and
subsequent to the passage of the Harter Act, from the case of Hart vs. Pennsylvania R. R.
Co. (decided Nov. 24, 1884; 112 U. S., 331), to the case of the Union Pacific Ry.
Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of
carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a
valuation of the property carried, with the rate of freight based on the condition that the
carrier assumes liability only to the extent of the agreed valuation, even in case of loss or
damage by the negligence of the carrier, the contract will be upheld as proper and lawful

mode of securing a due proportion between the amount for which the carrier may be
responsible and the freight he receives, and protecting himself against extravagant and
fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases,
from the decision in Hartvs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct.
Rep., 151, decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed.,
820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to
be the settled Federal law that if a common carrier gives to a shipper the choice of two rates,
the lower of the conditioned upon his agreeing to a stipulated valuation of his property in
case of loss, even by the carrier's negligence, if the shipper makes such a choice,
understandingly and freely, and names his valuation, he cannot thereafter recover more than
the value which he thus places upon his property. As a matter of legal distinction, estoppel is
made the basis of this ruling, that, having accepted the benefit of the lower rate, in
common honesty the shipper may not repudiate the conditions on which it was obtained,
but the rule and the effect of it are clearly established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement
with a shipper, limit its liability in case of the loss by negligence of an interstate shipment to
less than the real value thereof, unless the shipper is given a choice of rates, based on
valuation."
A limitation of liability based upon an agreed value to obtain a lower rate does not
conflict with any sound principle of public policy; and it is not conformable to plain
principles of justice that a shipper may understate value in order to reduce the rate
and then recover a larger value in case of loss. (Adams Express Co. vs.Croninger
226 U. S. 491, 492.) See also Reid vs. Farbo (130 C. C. A., 285);
Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and
Co. (227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading
here in question are not contrary to public order. Article 1255 of the Civil Code provides that
"the contracting parties may establish any agreements, terms and conditions they may deem
advisable, provided they are not contrary to law, morals or public order." Said clauses of the
bill of lading are, therefore, valid and binding upon the parties thereto.
II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of
the bill of lading here in question is to be adopted as the measure of defendant's liability.
Clause 1 provides as follows:
1. It is mutually agreed that the value of the goods receipted for above does not
exceed $500 per freight ton, or, in proportion for any part of a ton, unless the value
be expressly stated herein and ad valorem freight paid thereon. Clause 9 provides:
9. Also, that in the even of claims for short delivery of, or damage to, cargo being
made, the carrier shall not be liable for more than the net invoice price plus freight
and insurance less all charges saved, and any loss or damage for which the carrier
may be liable shall be adjusted pro rata on the said basis.
The defendant-appellant contends that these two clauses, if construed together, mean that
the shipper and the carrier stipulate and agree that the value of the goods receipted for does
not exceed $500 per freight ton, but should the invoice value of the goods be less than $500

per freight ton, then the invoice value governs; that since in this case the invoice value is
more than $500 per freight ton, the latter valuation should be adopted and that according to
that valuation, the proportionate value of the clocks in question is only P76.36 which the
defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle
in case of loss on the basis of not exceeding $500 per freight ton, clause 9 contains
an express undertaking to settle on the basis of the net invoice price plus freight and
insurance less all charges saved. "Any loss or damage for which the carrier may be
liable shall be adjusted pro rata on the said basis," clause 9 expressly provides. It seems to
us that there is an irreconcilable conflict between the two clauses with regard to the measure
of defendant's liability. It is difficult to reconcile them without doing violence to the language
used and reading exceptions and conditions into the undertaking contained in clause 9 that
are not there. This being the case, the bill of lading in question should be interpreted against
the defendant carrier, which drew said contract. "A written contract should, in case of doubt,
be interpreted against the party who has drawn the contract." (6 R. C. L. 854.) It is a wellknown principle of construction that ambiguity or uncertainty in an agreement must be
construed most strongly against the party causing it. (6 R. C. L., 855.) These rules as
applicable to contracts contained in bills of lading. "In construing a bill of lading given by the
carrier for the safe transportation and delivery of goods shipped by a consignor, the contract
will be construed most strongly against the carrier, and favorably to the consignor, in case of
doubt in any matter of construction." (Alabama, etc. R. R. Co. vs. Thomas, 89 Ala., 294; 18
Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed,
without any finding as to costs. So ordered

G.R. No. L-27796 March 25, 1976

ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant,
vs.
MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN
MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, defendants-appellees.
Chuidian Law Office for appellant.
Salcedo, Del Rosario Bito & Mesa for appellee Macondray & Co., Inc., Barber Steamship
Lines, Inc. and Wilhelm Wilhelmsen
Macaranas & Abrenica for appellee Manila Port Service and/or Manila Railroad Company.
ANTONIO, J.:
Certified to this Court by the Court of Appeals in its Resolution of May 8, 1967, 1 on the
ground that the appeal involves purely questions of law, thus: (a) whether or not, in case of
loss or damage, the liability of the carrier to the consignee is limited to the C.I.F. value of the
goods which were lost or damaged, and (b) whether the insurer who has paid the claim in
dollars to the consignee should be reimbursed in its peso equivalent on the date of discharge
of the cargo or on the date of the decision.
According to the records, on June 29, 1960, Winthrop Products, Inc., of New York, New York,
U.S.A., shipped aboard the SS "Tai Ping", owned and operated by Wilhelm Wilhelmsen 218
cartons and drums of drugs and medicine, with the freight prepaid, which were consigned to
Winthrop-Stearns Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of Wilhelm
Wilhelmsen issued Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper,
with arrival notice in Manila to consignee Winthrop-Stearns, Inc., Manila, Philippines. The
shipment was insured by the shipper against loss and/or damage with the St. Paul Fire &
Marine Insurance Company under its insurance Special Policy No. OC-173766 dated June
23, 1960 (Exhibit "S").
On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its
aforesaid shipment into the custody of Manila Port Service, the arrastre contractor for the
Port of Manila. The said shipment was discharged complete and in good order with the
exception of one (1) drum and several cartons which were in bad order condition. Because
consignee failed to receive the whole shipment and as several cartons of medicine were
received in bad order condition, the consignee filed the corresponding claim in the amount of
Fl,109.67 representing the C.I.F. value of the damaged drum and cartons of medicine with
the carrier, herein defendants- appellees (Exhibits "G" and "H") and the Manila Port Service
(Exhibits "I" & "J" However, both refused to pay such claim. consequently, the consignee filed
its claim with the insurer, St. Paul Fire & Marine insurance Co. (Exhibit "N"), and the
insurance company, on the basis of such claim, paid to the consignee the insured value of
the lost and damaged goods, including other expenses in connection therewith, in the total
amount of $1,134.46 U.S. currency (Exhibit "U").
On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St.
Paul Fire & Marine Insurance Co., instituted with the Court of First Instance of Manila the
present action 2 against the defendants for the recovery of said amount of $1,134.46, plus
costs.

On August 23, 1961, the defendants Manila Port Service and Manila Railroad Company
resisted the action, contending, among others, that the whole cargo was delivered to the
consignee in the same condition in which it was received from the carrying vessel; that their
rights, duties and obligations as arrastre contractor at the Port of Manila are governed by and
subject to the terms, conditions and limitations contained in the Management Contract
between the Bureau of Customs and Manila Port Service, and their liability is limited to the
invoice value of the goods, but in no case more than P500.00 per package, pursuant to
paragraph 15 of the said Management Contract; and that they are not the agents of the
carrying vessel in the receipt and delivery of cargoes in the Port of Manila.
On September 7, 1961, the defendants Macondray & Co., Inc., Barber Steamship Lines, Inc.
and Wilhelm Wilhelmsen also contested the claim alleging, among others, that the carrier's
liability for the shipment ceased upon discharge thereof from the ship's tackle; that they and
their co-defendant Manila Port Service are not the agents of the vessel; that the said 218
packages were discharged from the vessel SS "Tai Ping" into the custody of defendant
Manila Port Service as operator of the arrastre service for the Port of Manila; that if any
damage was sustained by the shipment while it was under the control of the vessel, such
damage was caused by insufficiency of packing, force majeure and/or perils of the sea; and
that they, in good faith and for the purpose only of avoiding litigation without admitting liability
to the consignee, offered to settle the latter's claim in full by paying the C.I.F. value of 27 lbs.
caramel 4.13 kilos methyl salicylate and 12 pieces pharmaceutical vials of the shipment, but
their offer was declined by the consignee and/or the plaintiff.
After due trial, the lower court, on March 10, 1965 rendered judgment ordering defendants
Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the
plaintiff, jointly and severally, the sum of P300.00, with legal interest thereon from the filing of
the complaint until fully paid, and defendants Manila Railroad Company and Manila Port
Service to pay to plaintiff, jointly and severally, the sum of P809.67, with legal interest
thereon from the filing of the complaint until fully paid, the costs to be borne by all the said
defendants. 3
On April 12, 1965, plaintiff, contending that it should recover the amount of $1,134.46, or its
equivalent in pesos at the rate of P3.90, instead of P2.00, for every US$1.00, filed a motion
for reconsideration, but this was denied by the lower court on May 5, 1965. Hence, the
present appeal.
Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled to recover
from the defendants-appellees the amount of $1,134.46 which it actually paid to the
consignee (Exhibits "N" & "U") and which represents the value of the lost and damaged
shipment as well as other legitimate expenses such as the duties and cost of survey of said
shipment, and that the exchange rate on the date of the judgment, which was P3.90 for every
US$1.00, should have been applied by the lower court.
Defendants-appellees countered that their liability is limited to the C.I.F. value of the goods,
pursuant to contract of sea carriage embodied in the bill of lading that the consignee's
(Winthrop-Stearns Inc.) claim against the carrier (Macondray & Co., Inc., Barber Steamship
Lines, Inc., Wilhelm Wilhelmsen and the arrastre operators (Manila Port Service and Manila
Railroad Company) was only for the sum of Pl,109.67 (Exhibits "G", "H", "I" & "J"),
representing the C.I.F. value of the loss and damage sustained by the shipment which was
the amount awarded by the lower court to the plaintiff-appellant; 4 defendants appellees are
not insurers of the goods and as such they should not be made to pay the insured value
therefor; the obligation of the defendants-appellees was established as of the date of
discharge, hence the rate of exchange should be based on the rate existing on that date, i.e.,

August 7, 1960, 5 and not the value of the currency at the time the lower court rendered its
decision on March 10, 1965.
The appeal is without merit.
The purpose of the bill of lading is to provide for the rights and liabilities of the parties in
reference to the contract to carry. 6 The stipulation in the bill of lading limiting the common
carrier's liability to the value of the goods appearing in the bill, unless the shipper or owner
declares a greater value, is valid and binding. 7 This limitation of the carrier's liability is
sanctioned by the freedom of the contracting parties to establish such stipulations, clauses,
terms, or conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs and public policy. 8 A stipulation fixing or limiting the sum that may be
recovered from the carrier on the loss or deterioration of the goods is valid, provided it is (a)
reasonable and just under the circumstances, 9 and (b) has been fairly and freely agreed
upon. 10 In the case at bar, the liabilities of the defendants- appellees with respect to the lost
or damaged shipments are expressly limited to the C.I.F. value of the goods as per contract
of sea carriage embodied in the bill of lading, which reads:
Whenever the value of the goods is less than $500 per package or other
freight unit, their value in the calculation and adjustment of claims for
which the Carrier may be liable shall for the purpose of avoiding
uncertainties and difficulties in fixing value be deemed to be the invoice
value, plus frieght and insurance if paid, irrespective of whether any other
value is greater or less.
The limitation of liability and other provisions herein shall inure not only to
the benefit of the carrier, its agents, servants and employees, but also to
the benefit of any independent contractor performing services including
stevedoring in connection with the goods covered hereunder. (Paragraph
17, emphasis supplied.)
It is not pretended that those conditions are unreasonable or were not freely and fairly agreed
upon. The shipper and consignee are, therefore, bound by such stipulations since it is
expressly stated in the bill of lading that in "accepting this Bill of Lading, the shipper, owner
and consignee of the goods, and the holder of the Bill of Lading agree to be bound by all its
stipulations, exceptions and conditions, whether written, stamped or printed, as fully as if they
were all signed by such shipper, owner, consignee or holder. It is obviously for this reason
that the consignee filed its claim against the defendants-appellees on the basis of the C.I.F.
value of the lost or damaged goods in the aggregate amount of Pl,109.67 (Exhibits "G", "H",
"I", and "J"). 11
The plaintiff-appellant, as insurer, after paying the claim of the insured for damages under the
insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only
the amount that is recoverable by the latter. Since the right of the assured, in case of loss or
damage to the goods, is limited or restricted by the provisions in the bill of lading, a suit by
the insurer as subrogee necessarily is subject to like limitations and restrictions.
The insurer after paying the claim of the insured for damages under the
insurance is subrogated merely to the rights of the insured and therefore
can necessarily recover only that to what was recoverable by the
insured. 12

Upon payment for a total loss of goods insured, the insurance is only
subrogated to such rights of action as the assured has against 3rd
persons who caused or are responsible for the loss. The right of action
against another person, the equitable interest in which passes to the
insurer, being only that which the assured has, it follows that if the
assured has no such right of action, none passes to the insurer, and if the
assured's right of action is limited or restricted by lawful contract between
him and the person sought to be made responsible for the loss, a suit by
the insurer, in the Tight of the assured, is subject to like limitations or
restrictions. 13
Equally untenable is the contention of the plaintiff-appellant that because of extraordinary
inflation, it should be reimbursed for its dollar payments at the rate of exchange on the
date of the judgment and not on the date of the loss or damage. The obligation of the carrier
to pay for the damage commenced on the date it failed to deliver the shipment in good
condition to the consignee.
The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of
the consignee dated September 26, 1960 is $226.37 (for the pilferage, Exhibit "G") and
$324.33 (shortlanded, Exhibit "H") or P456.14 and P653.53, respectively, in Philippine
Currency. The peso equivalent was based by the consignee on the exchange rate of P2.015
to $1.00 which was the rate existing at that time. We find, therefore, that the trial court
committed no error in adopting the aforesaid rate of exchange.
WHEREFORE, the appealed decision is hereby affirmed, with costs against the plaintiffappellant.

G.R. No. 75118 August 31, 1987

SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the
name and style of "SEN HIAP HING," respondents.

To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to
recover from the carrier or shipper for loss of, or damage to, goods being transported under
said bill ,although that document may have been as in practice it oftentimes is drawn up
only by the consignor and the carrier without the intervention of the consignee. In Mendoza
vs. Philippine Air Lines, Inc. 11 the Court delved at some length into the reasons behind this
when, upon a claim made by the consignee of a motion picture film shipped by air that he
was never a party to the contract of transportation and was a complete stranger thereto, it
said:

NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by
stipulations in the covering bill of lading limiting to a fixed amount the liability of the carrier for
loss or damage to the cargo where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign
shipping and forwarding company licensed to do business in the Philippines, received from
Seaborne Trading Company in Oakland, California a shipment consigned to Sen Hiap Hing
the business name used by Paulino Cue in the wholesale and retail trade which he operated
out of an establishment located on Borromeo and Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill
of lading. The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on
volume measurements Sea-land charged the shipper the total amount of US$209.28 2 for
freight age and other charges. The shipment was loaded on board the MS Patriot, a vessel
owned and operated by Sea-Land, for discharge at the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No.
310996 into the custody of the arrastre contractor and the customs and port
authorities. 3 Sometime between February 13 and 16, 1981, after the shipment had been
transferred, along with other cargoes to Container No. 40158 near Warehouse 3 at Pier 3 in
South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and has
never been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the
value of the lost shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle
for US$4,000.00, or its then Philippine peso equivalent of P30,600.00. asserting that said
amount represented its maximum liability for the loss of the shipment under the package
limitation clause in the covering bill of lading. 6 Cue rejected the offer and thereafter brought
suit for damages against Sea-Land in the then Court of First Instance of Cebu, Branch
X. 7 Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land to pay
him P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00 for
unrealized profit with one (1%) percent monthly interest from the filing of the complaint until
fully paid, P25,000.00 for attorney's fees and P2,000.00 as litigation expenses. 8
Sea-Land appealed to the Intermediate Appellate Court. 9 That Court however affirmed the
decision of the Trial Court xxx in all its parts ... . 10 Sea-Land thereupon filed the present
petition for review which, as already stated, poses the question of whether, upon the facts
above set forth, it can be held liable for the loss of the shipment in any amount beyond the
limit of US$600.00 per package stipulated in the bill of lading.

But appellant now contends that he is not suing on a breach of contract but on a
tort as provided for in Art. 1902 of the Civil Code. We are a little perplexed as to this
new theory of the appellant. First, he insists that the articles of the Code of
Commerce should be applied: that he invokes the provisions of aid Code governing
the obligations of a common carrier to make prompt delivery of goods given to it
under a contract of transportation. Later, as already said, he says that he was never
a party to the contract of transportation and was a complete stranger to it, and that
he is now suing on a tort or a violation of his rights as a stranger (culpa aquiliana) If
he does not invoke the contract of carriage entered into with the defendant
company, then he would hardly have any leg to stand on. His right to prompt
delivery of the can of film at the Phil. Air Port stems and is derived from the contract
of carriage under which contract, the PAL undertook to carry the can of film safely
and to deliver it to him promptly. Take away or ignore that contract and the
obligation to carry and to deliver and right to prompt delivery disappear. Common
carriers are not obligated by law to carry and to deliver merchandise, and persons
are not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation. Said rights and obligations are created by a
specific contract entered into by the parties. In the present case, the findings of the
trial court which as already stated, are accepted by the parties and which we must
accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one side,
and the defendant company on the other, entered into a contract of transportation
(p. 29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures
Inc. through previous agreement with Mendoza acted as the latter's agent. When
he negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen" and
show it during the Naga town fiesta, he most probably authorized and enjoined the
Picture Company to ship the film for him on the PAL on September 17th. Another
interpretation is that even if the LVN Pictures Inc. as consignor of its own initiative,
and acting independently of Mendoza for the time being, made Mendoza as
consignee, a stranger to the contract if that is possible, nevertheless when he,
Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill (Exh.
1) demanding the delivery of the shipment to him, he thereby made himself a party
to the contract of transportation. The very citation made by appellant in his
memorandum supports this view. Speaking of the possibility of a conflict between
the order of the shipper on the one hand and the order of the consignee on the
other, as when the shipper orders the shipping company to return or retain the
goods shipped while the consignee demands their delivery, Malagarriga in his book
Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina
Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book
entitled "Commentaries and Jurisprudence on the Commercial Laws of the
Philippines" p. 209, says that the right of the shipper to countermand the shipment
terminates when the consignee or legitimate holder of the bill of lading appears with
such big of lading before the carrier and makes himself a party to the contract. Prior
to that time he is a stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257,
paragraph 2, of the old Civil Code (now Art, 1311, second paragraph) which reads
thus:
Should the contract contain any stipulation in favor of a third
person, he may demand its fulfillment provided he has given
notice of his acceptance to the person bound before the
stipulation has been revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant
carrier contains the stipulations of delivery to Mendoza as consignee. His demand
for the delivery of the can of film to him at the Phil Air Port may be regarded as a
notice of his acceptance of the stipulation of the delivery in his favor contained in
the contract of carriage and delivery. In this case he also made himself a party to
the contract, or at least has come to court to enforce it. His cause of action must
necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it under
a contract of carriage is governed by the laws of the country of destination 12 and the goods
in question were shipped from the United States to the Philippines, the liability of petitioner
Sea-Land to the respondent consignee is governed primarily by the Civil Code, and as
ordained by the said Code, suppletorily, in all matters not determined thereby, by the Code of
Commerce and special laws. 13 One of these suppletory special laws is the Carriage of
Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts for
the carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth
Act No. 65, approved on October 22, 1936. Sec. 4(5) of said Act in part reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading, shall be prima facie evidence, but shall not be
conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to
its shipping clients 14 is a virtual copy of the first paragraph of the foregoing provision. It
says:
22. VALUATION. In the event of any loss, damage or delay to or in connection with
goods exceeding in actual value $500 per package, lawful money of the United
States, or in case of goods not shipped in packages, per customary freight unit, the
value of the goods shall be deemed to be $500 per package or per customary

freight unit, as the case may be, and the carrier's liability, if any, shall be
determined on the basis of a value of $500 per package or customary freight unit,
unless the nature and a higher value shall be declared by the shipper in writing
before shipment and inserted in this Bill of Lading.
And in its second paragraph, the bill states:
If a value higher than $500 shag have been declared in writing by the shipper upon
delivery to the carrier and inserted in this bill of lading and extra freight paid, if
required and in such case if the actual value of the goods per package or per
customary freight unit shall exceed such declared value, the value shall
nevertheless be deemed to be declared value and the carrier's liability, if any, shall
not exceed the declared value and any partial loss or damage shall be adjusted pro
rata on the basis of such declared value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and
obligations of common carriers to the provisions of the Code of Commerce and of special
laws in matters not regulated by said (Civil) Code, the Court fails to fathom the reason or
justification for the Appellate Court's pronouncement in its appealed Decision that the
Carriage of Goods by Sea Act " ... has no application whatsoever in this case. 15 Not only is
there nothing in the Civil Code which absolutely prohibits agreements between shipper and
carrier limiting the latter's liability for loss of or damage to cargo shipped under contracts of
carriage; it is also quite clear that said Code in fact has agreements of such character in
contemplation in providing, in its Articles 1749 and 1750, that:
ART. 1749 A stipulation that the common carrier's liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed
upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is
repugnant to or inconsistent with any of the just-cited provisions of the Civil Code. Said
section merely gives more flesh and greater specificity to the rather general terms of Article
1749 (without doing any violence to the plain intent thereof) and of Article 1750, to give effect
to just agreements limiting carriers' liability for loss or damage which are freely and fairly
entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist,
the validity and binding effect of the liability limitation clause in the bill of lading here are
nevertheless fully sustainable on the basis alone of the cited Civil Code provisions. That said
stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justice and fairness of that law
itself, and this the private respondent does not pretend to do. But over and above that
consideration, the lust and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding acrrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading. And since the shipper here has not been heard to complaint of having been "rushed,"

imposed upon or deceived in any significant way into agreeing to ship the cargo under a bill
of lading carrying such a stipulation in fact, it does not appear that said party has been
heard from at all insofar as this dispute is concerned there is simply no ground for
assuming that its agreement thereto was not as the law would require, freely and fairly
sought and given.
The private respondent had no direct part or intervention in the execution of the contract of
carriage between the shipper and the carrier as set forth in the bill of lading in question. As
pointed out in Mendoza vs. PAL, supra, the right of a party in the same situation as
respondent here, to recover for loss of a shipment consigned to him under a bill of lading
drawn up only by and between the shipper and the carrier, springs from either a relation of
agency that may exist between him and the shipper or consignor, or his status as a stranger
in whose favor some stipulation is made in said contract, and who becomes a party thereto
when he demands fulfillment of that stipulation, in this case the delivery of the goods or cargo
shipped. In neither capacity can he assert personally, in bar to any provision of the bill of
lading, the alleged circumstance that fair and free agreement to such provision was vitiated
by its being in such fine print as to be hardly readable. Parenthetically, it may be observed
that in one comparatively recent case 16where this Court found that a similar package
limitation clause was "(printed in the smallest type on the back of the bill of lading, it
nonetheless ruled that the consignee was bound thereby on the strength of authority holding
that such provisions on liability limitation are as much a part of a bill of lading as though
physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of
freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of
the carrier to an agreed valuation unless the shipper declares a higher value and inserts it
into said contract or bill. This pro position, moreover, rests upon an almost uniform weight of
authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which
expressly authorizes trans-shipment of the goods at any point in the voyage in these terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the
exercise of its or his discretion and although transshipment or forwarding of the
goods may not have been contemplated or provided for herein, may at port of
discharge or any other place whatsoever transship or forward the goods or any part
thereof by any means at the risk and expense of the goods and at any time,
whether before or after loading on the ship named herein and by any route, whether
within or outside the scope of the voyage or beyond the port of discharge or
destination of the goods and without notice to the shipper or consignee. The carrier
or master may delay such transshipping or forwarding for any reason, including but
not limited to awaiting a vessel or other means of transportation whether by the
carrier or others.
Said provision obviates the necessity to offer any other justification for offloading the
shipment in question in Manila for transshipment to Cebu City, the port of destination
stipulated in the bill of lading. Nonetheless, the Court takes note of Sea-Land's explanation
that it only directly serves the Port of Manila from abroad in the usual course of voyage of its
carriers, hence its maintenance of arrangements with a local forwarder. Aboitiz and
Company, for delivery of its imported cargo to the agreed final point of destination within the
Philippines, such arrangements not being prohibited, but in fact recognized, by law. 18

Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable
up to the final port of destination and that the fact that transshipment was made on an
interisland vessel did not remove the contract of carriage of goods from the operation of said
Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading
relied upon by petitioner Sea Land form no part of the short-form bill of lading attached to his
complaint before the Trial Court and appear only in the long form of that document which, he
claims. SeaLand offered (as its Exhibit 2) as an unused blank form with no entries or
signatures therein. He, however, admitted in the Trial Court that several times in the past
shipments had been delivered to him through Sea-Land, 20 from which the assumption may
fairly follow that by the time of the consignment now in question, he was already reasonably
apprised of the usual terms covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage
of Goods by Sea Act on package limitation [sec 4(5) of the Act hereinabove referred to] are
as much a part of a bill of lading as though actually placed therein by agreement of the
parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all intents
and purposes accepted said bill. Having done so, he
... becomes bound by all stipulations contained therein whether on the front or the
back thereof. Respondent cannot elude its provisions simply because they
prejudice him and take advantage of those that are beneficial. Secondly, the fact
that respondent shipped his goods on board the ship of petitioner and paid the
corresponding freight thereon shows that he impliedly accepted the bill of lading
which was issued in connection with the shipment in question, and so it may be
said that the same is finding upon him as if it had been actually signed by him or by
any other person in his behalf. ... 22.
There is one final consideration. The private respondent admits 23 that as early as on April
22, 1981, Sea-Land had offered to settle his claim for US$4,000.00, the limit of said carrier's
liability for loss of the shipment under the bill of lading. This Court having reached the
conclusion that said sum is all that is justly due said respondent, it does not appear just or
equitable that Sea-Land, which offered that amount in good faith as early as six years ago,
should, by being made to pay at the current conversion rate of the dollar to the peso, bear for
its own account all of the increase in said rate since the time of the offer of settlement. The
decision of the Regional Trial Court awarding the private respondent P186,048.00 as the
peso value of the lost shipment is clearly based on a conversion rate of P8.00 to US$1.00,
said respondent having claimed a dollar value of $23,256.00 for said shipment. 24 All
circumstances considered, it is just and fair that Sea-Land's dollar obligation be convertible at
the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed
and set aside. The stipulation in the questioned bill of lading limiting Sea-Land's liability for
loss of or damage to the shipment covered by said bill to US$500.00 per package is held
valid and binding on private respondent. There being no question of the fact that said
shipment consisted of eight (8) cartons or packages, for the loss of which Sea-Land is
therefore liable in the aggregate amount of US$4,000.00, it is the judgment of the Court that
said petitioner discharge that obligation by paying private respondent the sum of P32,000.00,
the equivalent in Philippine currency of US$4,000.00 at the conversion rate of P8.00 to
$1.00. Costs against private respondent.
SO ORDERED.

G.R. No. 88092 April 25, 1990

CITADEL LINES, INC., petitioner, vs.
COURT OF APPEALS * and MANILA WINE MERCHANTS, INC., respondents.
Del Rosario & Del Rosario Law Offices for petitioner.
Limqueco and Macaraeg Law Office for private respondent.
REGALADO, J.:
Through this petition, we are asked to review the decision of the Court of Appeals dated
December 20, 1988, in CA-G.R. No. CV-10070, 1 which affirmed the August 30, 1985
decision of the Regional Trial Court of Manila, Branch 27, in Civil Case No. 126415, entitled
Manila Wine Merchants, Inc. vs. Citadel Lines, Inc. and E. Razon, Inc., with a modification by
deleting the award of attorney's fees and costs of suit.
The following recital of the factual background of this case is culled from the findings in the
decision of the court a quo and adopted by respondent court based on the evidence of
record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent of
the vessel "Cardigan Bay/Strait Enterprise," while respondent Manila Wine Merchants, Inc.
(hereafter, the CONSIGNEE) is the importer of the subject shipment of Dunhill cigarettes
from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board at
Southampton, England, for carriage to Manila, 180 Filbrite cartons of mixed British
manufactured cigarettes called "Dunhill International Filter" and "Dunhill International
Menthol," as evidenced by Bill of Lading No. 70621374 2 and Bill of Lading No. 70608680 3 of
the Ben Line Containers Ltd. The shipment arrived at the Port of Manila Pier 13, on April 18,
1979 in container van No. BENU 204850-9. The said container was received by E. Razon,
Inc. (later known as Metro Port Service, Inc. and referred to herein as the ARRASTRE) under
Cargo Receipt No. 71923 dated April 18, 1979. 4
On April 30, 1979, the container van, which contained two shipments was stripped. One
shipment was delivered and the other shipment consisting of the imported British
manufactured cigarettes was palletized. Due to lack of space at the Special Cargo Coral, the
aforesaid cigarettes were placed in two containers with two pallets in container No. BENU
204850-9, the original container, and four pallets in container No. BENU 201009-9, with both
containers duly padlocked and sealed by the representative of the CARRIER.
In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van
No. BENU 201009-9 had a different padlock and the seal was tampered with. The matter
was reported to Jose G. Sibucao, Pier Superintendent, Pier 13, and upon verification, it was
found that 90 cases of imported British manufactured cigarettes were missing. This was
confirmed in the report of said Superintendent Sibucao to Ricardo Cosme, Assistant
Operations Manager, dated May 1, 1979 5 and the Official Report/Notice of Claim of Citadel
Lines, Inc. to E. Razon, Inc. dated May 8, 1979. 6 Per investigation conducted by the
ARRASTRE, it was revealed that the cargo in question was not formally turned over to it by
the CARRIER but was kept inside container van No. BENU 201009-9 which was padlocked

and sealed by the representatives of the CARRIER without any participation of the
ARRASTRE.
When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated May
21, 1979, 7 with the CARRIER, demanding the payment of P315,000.00 representing the
market value of the missing cargoes. The CARRIER, in its reply letter dated May 23,
1979, 8 admitted the loss but alleged that the same occurred at Pier 13, an area absolutely
under the control of the ARRASTRE. In view thereof, the CONSIGNEE filed a formal claim,
dated June 4, 1979, 9 with the ARRASTRE, demanding payment of the value of the goods
but said claim was denied.
After trial, the lower court rendered a decision on August 30, 1985, exonerating the
ARRASTRE of any liability on the ground that the subject container van was not formally
turned over to its custody, and adjudging the CARRIER liable for the principal amount of
P312,480.00 representing the market value of the lost shipment, and the sum of P30,000.00
as and for attorney's fees and the costs of suit.
As earlier stated, the court of Appeals affirmed the decision of the court a quo but deleted the
award of attorney's fees and costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was in the custody of E. Razon, Inc.
or of Citadel Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier contained in the bill of lading is
binding on the consignee.
The first issue is factual in nature. The Court of Appeals declared in no uncertain terms that,
on the basis of the evidence presented, the subject cargo which was placed in a container
van, padlocked and sealed by the representative of the CARRIER was still in its possession
and control when the loss occurred, there having been no formal turnover of the cargo to the
ARRASTRE. Besides, there is the categorical admission made by two witnesses, namely,
Atty. Lope M. Velasco and Ruben Ignacio, Claims Manager and Head Checker, respectively,
of the CARRIER, 10 that for lack of space the containers were not turned over to and as the
responsibility of E. Razon Inc. The CARRIER is now estopped from claiming otherwise.
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case. 11 If
the goods are lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they observed extra ordinary
diligence as required in Article 1733 of the Civil Code. 12 The duty of the consignee is to
prove merely that the goods were lost. Thereafter, the burden is shifted to the carrier to prove
that it has exercised the extraordinary diligence required by law. And, its extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee or to the person who has the right to receive
them. 13

Considering, therefore, that the subject shipment was lost while it was still in the custody of
herein petitioner CARRIER, and considering further that it failed to prove that the loss was
occasioned by an excepted cause, the inescapable conclusion is that the CARRIER was
negligent and should be held liable therefor.
The cases cited by petitioner in support of its allegations to the contrary do not find proper
application in the case at bar simply because those cases involve a situation wherein the
shipment was turned over to the custody and possession of the arrastre operator.
We, however, find the award of damages in the amount of P312,800.00 for the value of the
goods lost, based on the alleged market value thereof, to be erroneous. It is clearly and
expressly provided under Clause 6 of the aforementioned bills of lading issued by the
CARRIER that its liability is limited to $2.00 per kilo. Basic is the rule, long since enshrined as
a statutory provision, that a stipulation limiting the liability of the carrier to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding. 14 Further, a contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under
the circumstances, and has been fairly and freely agreed upon. 15
The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does
not appear in the bills of lading. 16 Hence, the stipulation on the carrier's limited liability
applies. There is no question that the stipulation is just and reasonable under the
circumstances and have been fairly and freely agreed upon. In Sea-land Service,
Inc. vs. Intermediate Appellate Court, et al. 17 we there explained what is a just and
reasonable, and a fair and free, stipulation, in this wise:
. . . That said stipulation is just and reasonable arguable from the fact that
it echoes Art. 1750 itself in providing a limit to liability only if a greater
value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justice and fairness of that law
itself, and this the private respondent does not pretend to do. But over
and above that consideration the just and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option of avoiding
accrual of liability limitation by the simple and surely far from onerous
expedient of declaring the nature and value of the shipment in the bill of
lading. And since the shipper here has not been heard to complain of
having been "rushed," imposed upon or deceived in any significant way
into agreeing to ship the cargo under a bill of lading carrying such a
stipulation in fact, it does not appear, that said party has been heard
from at all insofar as this dispute is concerned there is simply no
ground for assuming that its agreement thereto was not as the law would
require, freely and fairly sought and well.
The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since 90
cartons were lost and the weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the
CARRIER's liability amounts to only US$4,467.60.
WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel
Lines, Inc. is ordered to pay private respondent Manila Wine Merchants, Inc. the sum of
US$4,465.60. or its equivalent in Philippine currency at the exchange rate obtaining at the
time of payment thereof. In all other respects, said judgment of respondent Court is
AFFIRMED.

SO ORDERED.

[G.R. No. 122494. October 8, 1998]

EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT OF APPEALS and
HERNANDEZ TRADING CO. INC., respondents.
DECISION
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the
reversal of the decision[1] of the Court of Appeals, dated June 14, 1995, in CA-G.R. No.
428093, which affirmed the decision of the Regional Trial Court of Kalookan City, Branch
126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez
Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No.
12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company,
Ltd. (Maruman Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates
were shipped from Nagoya, Japan to Manila on board ADELFAEVERETTE, a
vessel owned by petitioners principal, Everett Orient Lines. The said crates were covered
by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO
C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter of January
13, 1992 addressed to private respondent, which thereafter made a formal claim upon
petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two
Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM941, dated November 14, 1991. However, petitioner offered to pay only One Hundred
Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the
covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection
docketed as Civil Case No. C-15532, against petitioner before the Regional Trial Court of
Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial
evidence to offer and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment[2] in favor of private respondent,
ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent
representing the actual value of the lost cargo and the material and packaging cost; (c) 10%
of the total amount as an award for and as contingent attorneys fees; and (d) to pay the cost
of the suit. The trial court ruled:
Considering defendants categorical admission of loss and its failure to overcome
the presumption of negligence and fault, the Court conclusively finds defendant
liable to the plaintiff. The next point of inquiry the Court wants to resolve is the
extent of the liability of the defendant. As stated earlier, plaintiff contends that
defendant should be held liable for the whole value for the loss of the goods in the
amount of Y1,552,500.00 because the terms appearing at the back of the bill of
lading was so written in fine prints and that the same was not signed by plaintiff or
shipper thus, they are not bound by the clause stated in paragraph 18 of the bill of
lading. On the other hand, defendant merely admitted that it lost the shipment but
shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code -

Art. 1750. A contract fixing the sum that may be recovered by the owner
or shipper for the loss, destruction or deterioration of the goods is valid,
if it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon.
It is required, however, that the contract must be reasonable and just under the
circumstances and has been fairly and freely agreed upon. The requirements
provided in Art. 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss,
destruction or deterioration of the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article
have not been met. The fact that those conditions are printed at the back of the
bill of lading in letters so small that they are hard to read would not warrant the
presumption that the plaintiff or its supplier was aware of these conditions such
that he had fairly and freely agreed to these conditions. It can not be said that
the plaintiff had actually entered into a contract with the defendant, embodying the
conditions as printed at the back of the bill of lading that was issued by the
defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed the
trial courts findings with the additional observation that private respondent can not be bound
by the terms and conditions of the bill of lading because it was not privy to the contract of
carriage. It said:
As to the amount of liability, no evidence appears on record to show that the
appellee (Hernandez Trading Co.) consented to the terms of the Bill of
Lading. The shipper named in the Bill of Lading is Maruman Trading Co., Ltd.
whom the appellant (Everett Steamship Corp.) contracted with for the
transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted
the terms of the bill of lading when it delivered the cargo to the appellant, still it
does not necessarily follow that appellee Hernandez Trading Company as
consignee is bound thereby considering that the latter was never privy to the
shipping contract.
xxx

xxx

xxx

Never having entered into a contract with the appellant, appellee should therefore
not be bound by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost,
the basis of which is not the breach of contract as appellee was never a privy to
the any contract with the appellant, but is based on Article 1735 of the New Civil
Code, there being no evidence to prove satisfactorily that the appellant has
overcome the presumption of negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the
consent of the consignee to the terms and conditions of the bill of lading is necessary to
make such stipulations binding upon it; (2) in holding that the carriers limited package liability
as stipulated in the bill of lading does not apply in the instant case; and (3) in allowing private
respondent to fully recover the full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.

A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value,
is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which provide:

The trial courts ratiocination that private respondent could not have fairly and freely
agreed to the limited liability clause in the bill of lading because the said conditions were
printed in small letters does not make the bill of lading invalid.

ART. 1749. A stipulation that the common carriers liability is limited to the value
of the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.

We ruled in PAL, Inc. vs. Court of Appeals[5] that the jurisprudence on the matter
reveals the consistent holding of the court that contracts of adhesion are not
invalid per se and that it has on numerous occasions upheld the binding effect thereof. Also,
in Philippine American General Insurance Co., Inc. vs. Sweet Lines , Inc.[6] this Court ,
speaking through the learned Justice Florenz D. Regalado, held:

ART. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been freely and fairly
agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a
number of cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate Court[4], we
ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading here are
nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That said
stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in
providing a limit to liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justness and fairness of the law
itself, and this the private respondent does not pretend to do. But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading..
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting
the common carriers liability for loss must be reasonable and just under the circumstances,
and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on
the basis of the shippers net invoice cost plus freight and insurance premiums, if
paid, and in no event shall the carrier be liable for any loss of possible profits or
any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any
connection with, goods in an amount exceeding One Hundred Thousand Yen in
Japanese Currency (Y100,000.00) or its equivalent in any other currency per
package or customary freight unit (whichever is least) unless the value of the
goods higher than this amount is declared in writing by the shipper before receipt
of the goods by the carrier and inserted in the Bill of Lading and extra freight is
paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the
carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of the
carrier. Considering that the shipper did not declare a higher valuation, it had itself to
blame for not complying with the stipulations.

x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of

adhesion wherein one party imposes a ready-made form of contract on the other x
x x are contracts not entirely prohibited. The one who adheres to the contract is
in reality free to reject it entirely; if he adheres he gives his consent. In the
present case, not even an allegation of ignorance of a party excuses noncompliance with the contractual stipulations since the responsibility for ensuring
full comprehension of the provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case may be. (Emphasis
supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations in contracts
of adhesion are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x, he is
nevertheless bound by the provisions thereof. Such provisions have been held to
be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latters lack of knowledge or assent to the regulation. It is what
is known as a contract of adhesion, in regards which it has been said that
contracts of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent. x x x , a contract limiting liability
upon an agreed valuation does not offend against the policy of the law forbidding
one from contracting against his own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of
adhesion in that the said contracts must be carefully scrutinized in order to shield the unwary
(or weaker party) from deceptive schemes contained in ready-made covenants,[8]such as the
bill of lading in question. The stringent requirement which the courts are enjoined to observe
is in recognition of Article 24 of the Civil Code which mandates that (i)n all contractual,
property or other relations, when one of the parties is at a disadvantage on account of
his moral dependence, ignorance, indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the
trading business. It can not be said to be ignorant of the business transactions it entered into
involving the shipment of its goods to its customers. The shipper could not have known, or
should know the stipulations in the bill of lading and there it should have declared a higher
valuation of the goods shipped. Moreover, Maruman Trading has not been heard to
complain that it has been deceived or rushed into agreeing to ship the cargo in petitioners
vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who
is not a signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held
that even if the consignee was not a signatory to the contract of carriage between the shipper

and the carrier, the consignee can still be bound by the contract. Speaking through Mr. Chief
Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill
of lading to recover from the carrier or shipper for loss of, or damage to goods
being transported under said bill, although that document may have been- as
in practice it oftentimes is-drawn up only by the consignor and the
carrier without the intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to
recover for loss of a shipment consigned to him under a bill of lading drawn
up only by and between the shipper and the carrier, springs from either a
relation of agency that may exist between him and the shipper or consignor,
or his status as stranger in whose favor some stipulation is made in said
contract, and who becomes a party thereto when he demands fulfillment of
that stipulation, in this case the delivery of the goods or cargo shipped. In
neither capacity can he assert personally, in bar to any provision of the bill
of lading, the alleged circumstance that fair and free agreement to such
provision was vitiated by its being in such fine print as to be hardly
readable. Parenthetically, it may be observed that in one comparatively recent
case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15)
where this Court found that a similar package limitation clause was printed in
the smallest type on the back of the bill of lading, it nonetheless ruled that
the consignee was bound thereby on the strength of authority holding that
such provisions on liability limitation are as much a part of a bill of lading as
though physically in it and as though placed therein by agreement of the
parties.
There can, therefore, be no doubt or equivocation about the validity and
enforceability of freely-agreed-upon stipulations in a contract of carriage or bill of
lading limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and inserts it into said contract or bill. This
proposition, moreover, rests upon an almost uniform weight of authority.
(Underscoring supplied)
When private respondent formally claimed reimbursement for the missing goods from
petitioner and subsequently filed a case against the latter based on the very same bill of
lading, it (private respondent) accepted the provisions of the contract and thereby made
itself a party thereto, or at least has come to court to enforce it.[9] Thus, private respondent
cannot now reject or disregard the carriers limited liability stipulation in the bill of lading. In
other words, private respondent is bound by the whole stipulations in the bill of lading and
must respect the same.
Private respondent, however, insists that the carrier should be liable for the full value of
the lost cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman
Trading, had "fully declared the shipment x x x, the contents of each crate, the dimensions,
weight and value of the contents,"[10] as shown in the commercial Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents,
quantity and value of "the shipment which consisted of three pre-packed crates described in
Bill of Lading No. NGO-53MN merely as 3 CASES SPARE PARTS.[11]
The bill of lading in question confirms petitioners contention. To defeat the carriers
limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper should
have declared in writing a higher valuation of its goods before receipt thereof by the
carrier and insert the said declaration in the bill of lading, with the extra freight
paid. These requirements in the bill of lading were never complied with by the shipper,

hence, the liability of the carrier under the limited liability clause stands. The commercial
Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner has
knowledge of the value of the cargo as contended by private respondent. No other evidence
was proffered by private respondent to support is contention. Thus, we are convinced that
petitioner should be liable for the full value of the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred
Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R.
CV No. 42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 168151 September 4, 2009

REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING
AGENCY, Petitioners, versus - THE NETHERLANDS INSURANCE CO.
(PHILIPPINES), INC., Respondent.

On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the
refrigerated container, it was plugged to the power terminal of the pier to keep its
temperature constant. Fidel Rocha (Rocha), Vice-President for Operations of Marines

BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional
Container Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul
and set aside the decision[1] and resolution[2] of the Court of Appeals (CA) dated May 26,
2004 and May 10, 2005, respectively, in CA-G.R. CV No. 76690.

RCL

is

foreign

corporation

based

Adjustment Corporation, accompanied by two surveyors, conducted a protective survey of

the cargo. They found that based on the temperature chart, the temperature reading was
constant from October 18, 1995 to October 25, 1995 at 0 Celsius. However,
at midnight of October 25, 1995 when the cargo had already been unloaded from the ship
the temperature fluctuated with a reading of 33 Celsius. Rocha believed the fluctuation was

in Singapore.

It

does

business

in

the Philippines through its agent, EDSA Shipping, a domestic corporation organized and
existing under Philippine laws. Respondent Netherlands Insurance Company (Philippines),
Inc. (Netherlands Insurance) is likewise a domestic corporation engaged in the marine
underwriting business.

caused by the burnt condenser fan motor of the refrigerated container.

On November 9, 1995, Temic received the shipment. It found the cargo completely
damaged. Temic filed a claim for cargo loss against Netherlands Insurance, with supporting
claims documents. The Netherlands Insurance paid Temic the sum of P1,036,497.00 under
the terms of the Marine Open Policy. Temic then executed a loss and subrogation receipt in

FACTUAL ANTECEDENTS

favor of Netherlands Insurance.

The pertinent facts, based on the records are summarized below.

Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance
filed a complaint for subrogation of insurance settlement with the Regional Trial Court,

On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be
shipped

from Singaporeto Manila for

Temic

Microelectronics Philippines (Temic). U-Freight Singapore PTE Ltd.

[3]

Telefunken
(U-Freight Singapore),

Branch 5, Manila, against the unknown owner ofM/V Piya Bhum and TMS Ship Agencies
(TMS), the latter thought to be the local agent of M/V Piya Bhums unknown owner.[4] The
complaint was docketed as Civil Case No. 96-78612.

a forwarding agent based in Singapore, contracted the services of Pacific Eagle Lines PTE.
Ltd. (Pacific Eagle) to transport the subject cargo. The cargo was packed, stored, and
sealed by Pacific Eagle in its Refrigerated Container No. 6105660 with Seal No. 13223. As
the cargo was highly perishable, the inside of the container had to be kept at a temperature
of 0 Celsius. Pacific Eagle then loaded the refrigerated container on board the M/V Piya

Netherlands Insurance amended the complaint on January 17, 1997 to implead

EDSA Shipping, RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean
(Phils.), Inc. (U-Ocean), as additional defendants. A third amended complaint was later
made, impleading Pacific Eagle in substitution of Eagle Liner Shipping Agencies.

Bhum, a vessel owned by RCL, with which Pacific Eagle had a slot charter agreement. RCL
duly issued its own Bill of Lading in favor of Pacific Eagle.

TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their
answers with cross-claim and compulsory counterclaim to the second amended complaint.

To insure the cargo against loss and damage, Netherlands Insurance issued a
Marine Open Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note
MRN-21 14022, to cover all losses/damages to the shipment.

U-Ocean likewise filed an answer with compulsory counterclaim and cross-claim. During the
pendency of the case, U-Ocean, jointly with U-Freight Singapore, filed another answer with

compulsory counterclaim. Only Pacific Eagle and TMS filed their answers to the third
amended complaint.

The defendants all disclaimed liability for the damage caused to the cargo, citing
several reasons why Netherland Insurances claims must be rejected. Specifically, RCL and

As such, defendants Regional Container Lines and EDSA

Shipping Agency are ordered to reimburse plaintiff in the sum
of P1,036,497.00 with interest from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]

EDSA Shipping denied negligence in the transport of the cargo; they attributed any
negligence that may have caused the loss of the shipment to their co-defendants. They
likewise asserted that no valid subrogation exists, as the payment made by Netherlands

The CA dismissed Netherland Insurances complaint against the other defendants after
finding that the claim had already been barred by prescription.[5]

Insurance to the consignee was invalid. By way of affirmative defenses, RCL and EDSA
Shipping averred that the Netherlands Insurance has no cause of action, and is not the real
party-in-interest, and that the claim is barred by laches/prescription.

After Netherlands Insurance had made its formal offer of evidence, the defendants
including RCL and EDSA Shipping sought leave of court to file their respective motions to

Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a
motion for reconsideration, but the CA maintained its original conclusions.

The sole issue for our resolution is whether the CA correctly held RCL and EDSA
Shipping liable as common carriers under the theory of presumption of negligence.

dismiss based on demurrer to evidence.

THE COURTS RULING
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1)
failed to prove any valid subrogation, and (2) failed to establish that any negligence on their
part or that the loss was sustained while the cargo was in their custody.

On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 9678612 on demurrer to evidence. The trial court ruled that while there was valid subrogation,
the defendants could not be held liable for the loss or damage, as their respective liabilities
ended at the time of the discharge of the cargo from the ship at the Port ofManila.

Netherlands Insurance seasonably appealed the order of dismissal to the CA.

On May 26, 2004, the CA disposed of the appeal as follows:

WHEREFORE, in view of the foregoing, the dismissal of the
complaint against defendants Regional Container Lines and Its
local agent, EDSA Shipping Agency, is REVERSED and SET
ASIDE. The dismissal of the complaint against the other defendants is
AFFIRMED. Pursuant to Section 1, Rule 33 of the 1997 Rules of Civil
Procedure, defendants Regional Container Lines and EDSA Shipping
Agency are deemed to have waived the right to present evidence.

The present case is governed by the following provisions of the Civil Code:
ART. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence
in the vigilance over the goods and for the safety of the passengers
transported by them according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is
further expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while
the extraordinary diligence for the safety of the passengers is further set
forth in articles1755 and 1756.
ART. 1734. Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the same is due to any
of the following causes only:
1)
2)
3)
4)
5)

Flood, storm, earthquake, lightning, or other natural

disaster or calamity;
Act of the public enemy in war, whether international or
civil;
Act of omission of the shipper or owner of the goods;
The character of the goods or defects in the packing or in
the containers;
Order or act of competent public authority.

ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4

and 5 of the preceding article, if the goods are lost, destroyed, or
deteriorated, common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they observed
extraordinary diligence as required by article 1733.

damage to the cargo occurred after the same was already discharged from the vessel and
was under the custody of the arrastre operator (International Container Terminal Services,
Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of negligence provided in
Article 1735 of the Civil Code should not apply. What applies in this case is Article 1734,

ART. 1736. The extraordinary responsibility of the common

carrier lasts from the time the goods are unconditionally placed in
the possession of, and received by the carrier for transportation
until the sane are delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right to receive
them, without prejudice to the provisions of articles 1738.

particularly paragraphs 3 and 4 thereof, which exempts the carrier from liability for loss or
damage to the cargo when it is caused either by an act or omission of the shipper or by the
character of the goods or defects in the packing or in the containers. Thus, RCL and EDSA
Shipping seek to lay the blame at the feet of other parties.

ART. 1738. The extraordinary liability of the common carrier

continues to be operative even during the time the goods are stored in a
warehouse of the carrier at the place of destination, until the consignee
has been advised of the arrival of the goods and has had reasonable
opportunity thereafter to remove them or otherwise dispose of them.

We do not find the arguments of RCL and EDSA Shipping meritorious.

A common carrier is presumed to have been negligent if it fails to prove that it

ART. 1742. Even if the loss, destruction, or deterioration of the

goods should be caused by the character of the goods, or the faulty
nature of the packing or of the containers, the common carrier must
exercise due diligence to forestall or lessen the loss.

exercised extraordinary vigilance over the goods it transported.[8] When the goods shipped
are either lost or arrived in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to

In Central Shipping Company, Inc. v. Insurance Company of North America,

[6]

we

hold it liable.[9]

reiterated the rules for the liability of a common carrier for lost or damaged cargo as follows:
(1)

Common carriers are bound to observe extraordinary diligence over the

goods they transport, according to all the circumstances of each case;

(2)

In the event of loss, destruction, or deterioration of the insured goods,

common carriers are responsible, unless they can prove that such loss,

To overcome the presumption of negligence, the common carrier must

establish by adequate proof that it exercised extraordinary diligence over the
goods. It must do more than merely show that some other party could be responsible
for the damage.[10]

destruction, or deterioration was brought about by, among others, flood,

storm, earthquake, lightning, or other natural disaster or calamity; and
(3)

In all other cases not specified under Article 1734 of the Civil Code,
common carriers are presumed to have been at fault or to have acted
negligently, unless they observed extraordinary diligence.[7]

In the present case, RCL and EDSA Shipping failed to prove that they did exercise that
degree of diligence required by law over the goods they transported. Indeed, there is
sufficient evidence showing that the fluctuation of the temperature in the refrigerated
container van, as recorded in the temperature chart, occurred after the cargo had been

In the present case, RCL and EDSA Shipping disclaim any responsibility for the
loss or damage to the goods in question. They contend that the cause of the damage to the
cargo was the fluctuation of the temperature in the reefer van, which fluctuation
occurred after the cargo had already been discharged from the vessel; no fluctuation, they
point out, arose when the cargo was still on board M/V Piya Bhum. As the cause of the

discharged from the vessel and was already under the custody of the arrastre operator,
ICTSI. This evidence, however, does not disprove that the condenser fan which caused the
fluctuation of the temperature in the refrigerated container was not damaged while the
cargo was being unloaded from the ship. It is settled in maritime law jurisprudence

that cargoes while being unloaded generally remain under the custody of the
carrier;[11] RCL and EDSA Shipping failed to dispute this.

RCL and EDSA Shipping could have offered evidence before the trial court to show
that the damage to the condenser fan did not occur: (1) while the cargo was in transit; (2)
while they were in the act of discharging it from the vessel; or (3) while they were delivering it
actually or constructively to the consignee. They could have presented proof to show that
they exercised extraordinary care and diligence in the handling of the goods, but they opted to
file a demurrer to evidence. As the order granting their demurrer was reversed on appeal,
the CA correctly ruled that they are deemed to have waived their right to present
evidence,[12] and the presumption of negligence must stand.

It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or
damage to the cargo was caused by a defect in the packing or in the containers. To
exculpate itself from liability for the loss/damage to the cargo under any of the causes, the
common carrier is burdened to prove any of the causes in Article 1734 of the Civil Code
claimed by it by a preponderance of evidence. If the carrier succeeds, the burden of
evidence is shifted to the shipper to prove that the carrier is negligent.[13] RCL and EDSA
Shipping, however, failed to satisfy this standard of evidence and in fact offered no evidence
at all on this point; a reversal of a dismissal based on a demurrer to evidence bars the
defendant from presenting evidence supporting its allegations.
WHEREFORE, we DENY the petition for review on certiorari filed by the Regional
Container Lines of Singapore and EDSA Shipping Agency. The decision of the Court of
Appeals dated May 26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs
against the petitioners.
SO ORDERED.

G.R. No. 162467

May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner, vs.

PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.

contracted by Del Monte, a distinct corporation from Del Monte Produce, had no contract with
the assured Del Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual damages
and P100,000.00 as attorneys fees.9 The actual damages were awarded as reimbursement
for the expenses incurred by Mindanao Terminals lawyer in attending the hearings in the
case wherein he had to travel all the way from Metro Manila to Davao City.

DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure of the 29 October 20032 Decision of the Court of Appeals and the 26 February
2004 Resolution3 of the same court denying petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a
shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh
pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce)
into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an "open
cargo policy" with private respondent Phoenix Assurance Company of New York (Phoenix), a
non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the
underwriting manager/agent of Phoenix.4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set
sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then
discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo
Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey
report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the
pineapple shipment were so damaged that they no longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment.
McGees Marine Claims Insurance Adjuster evaluated the claim and recommended that
payment in the amount of $210,266.43 be made. A check for the recommended amount was
sent to Del Monte Produce; the latter then issued a subrogation receipt6 to Phoenix and
McGee.
Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the
Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision
dated 20 October 1999, held that the only participation of Mindanao Terminal was to load the
cargoes on board the M/V Mistrau under the direction and supervision of the ships officers,
who would not have accepted the cargoes on board the vessel and signed the foremans
report unless they were properly arranged and tightly secured to withstand voyage across the
open seas. Accordingly, Mindanao Terminal cannot be held liable for whatever happened to
the cargoes after it had loaded and stowed them. Moreover, citing the survey report, it was
found by the RTC that the cargoes were damaged on account of a typhoon which M/V
Mistrau had encountered during the voyage. It was further held that Phoenix and McGee had
no cause of action against Mindanao Terminal because the latter, whose services were

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal
interest from the filing of the complaint until fully paid and attorneys fees of 20% of the
claim."11 It sustained Phoenixs and McGees argument that the damage in the cargoes was
the result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as
the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and
stowing the cargoes. It further held that even with the absence of a contractual relationship
between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and
McGee could be based on quasi-delict under Article 2176 of the Civil Code.12
Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in
its 26 February 200414 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao
Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three
questions have to be answered: first, whether Phoenix and McGee have a cause of action
against Mindanao Terminal; second, whether Mindanao Terminal, as a stevedoring
company, is under obligation to observe the same extraordinary degree of diligence in the
conduct of its business as required by law for common carriers15 and warehousemen;16 and
third, whether Mindanao Terminal observed the degree of diligence required by law of a
stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The
present action is based on quasi-delict, arising from the negligent and careless loading and
stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix
and McGee have only been subrogated in the rights of Del Monte Produce, who is not a
party to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Courts consistent ruling that the
act that breaks the contract may be also a tort.17 In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract18 . In the present case,
Phoenix and McGee are not suing for damages for injuries arising from the breach of the
contract of service but from the alleged negligent manner by which Mindanao Terminal
handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation of
negligence on the part of the defendant should be sufficient to establish a cause of action
arising from quasi-delict.19
The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the
degree of diligence which is to be observed in the performance of an obligation then that
which is expected of a good father of a family or ordinary diligence shall be required.

Mindanao Terminal, a stevedoring company which was charged with the loading and stowing
the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider
in the case at bar. There is no specific provision of law that imposes a higher degree of
diligence than ordinary diligence for a stevedoring company or one who is charged only with
the loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee
that Mindanao Terminal was bound by contractual stipulation to observe a higher degree of
diligence than that required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence only in loading
and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the
cargoes. The case ofSumma Insurance Corporation v. CA, which involved the issue of
whether an arrastre operator is legally liable for the loss of a shipment in its custody and the
extent of its liability, is inapplicable to the factual circumstances of the case at bar. Therein, a
vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with
Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a bundle of
PC 8 U blades, was discharged from the vessel to the custody of the private respondent, the
exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts
were issued by NGSC, duly signed by the ship's checker and a representative of private
respondent. When Semirara inspected the shipment at house, it discovered that the bundle
of PC8U blades was missing. From those facts, the Court observed:
x x x The relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a depositor and a
warehouseman[22 ]. In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively.Being the custodian of the goods discharged
from a vessel, an arrastre operator's duty is to take good care of the goods and to turn
them over to the party entitled to their possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which
refers to hauling of cargo, comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. The responsibility of the
arrastre operator lasts until the delivery of the cargo to the consignee. The service is usually
performed by longshoremen. On the other hand, stevedoring refers to the handling of the
cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel. The
responsibility of the stevedore ends upon the loading and stowing of the cargo in the
vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring function while
the private respondent in the Summa case was performing arrastre function. In the present
case, Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of
the cargoes from the pier to the ships cargo hold; it was never the custodian of the shipment
of Del Monte Produce. A stevedore is not a common carrier for it does not transport goods or
passengers; it is not akin to a warehouseman for it does not store goods for profit. The
loading and stowing of cargoes would not have a far reaching public ramification as that of a
common carrier and a warehouseman; the public is adequately protected by our laws on
contract and on quasi-delict. The public policy considerations in legally imposing upon a
common carrier or a warehouseman a higher degree of diligence is not present in a

stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its
clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that
Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in
equipoise or there is any doubt on which side the evidence preponderates the party having
the burden of proof fails upon that issue. That is to say, if the evidence touching a disputed
fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must
fail.261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The
Court of Appeals did not make any new findings of fact when it reversed the decision of the
trial court. The only participation of Mindanao Terminal was to load the cargoes on board M/V
Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as ropes,
pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V
Mistrau and these materials meets industry standard.30
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del
Monte Produce aboard theM/V Mistrau in accordance with the stowage plan, a guide for the
area assignments of the goods in the vessels hold, prepared by Del Monte Produce and the
officers of M/V Mistrau.31 The loading and stowing was done under the direction and
supervision of the ship officers. The vessels officer would order the closing of the hatches
only if the loading was done correctly after a final inspection.32 The said ship officers would
not have accepted the cargoes on board the vessel if they were not properly arranged and
tightly secured to withstand the voyage in open seas. They would order the stevedore to
rectify any error in its loading and stowing. A foremans report, as proof of work done on
board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by
the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly
loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the
survey report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by
the survey report,36 found that the cause of the damage was improper stowage37 due to the
manner the cargoes were arranged such that there were no spaces between cartons, the use
of cardboards as support system, and the use of small rope to tie the cartons together but not
by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes. As
admitted by Phoenix and McGee in their Comment38 before us, the latter is merely a
stevedoring company which was tasked by Del Monte to load and stow the shipments of
fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where
it should load and stow a shipment in a vessel is wholly dependent on the shipper and the
officers of the vessel. In other words, the work of the stevedore was under the supervision of
the shipper and officers of the vessel. Even the materials used for stowage, such as ropes,
pallets, and cardboards, are provided for by the vessel. Even the survey report found that it
was because of the boisterous stormy weather due to the typhoon Seth, as encountered
by M/V Mistrau during its voyage, which caused the shipments in the cargo hold to collapse,
shift and bruise in extensive extent.39 Even the deposition of Byeong was not supported by
the conclusion in the survey report that:
CAUSE OF DAMAGE
xxx

From the above facts and our survey results, we are of the opinion that damage occurred
aboard the carrying vessel during sea transit, being caused by ships heavy rolling and
pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700
hrs on 12th October, 1994 as described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family,
the grant of the petition is in order.
However, the Court finds no basis for the award of attorneys fees in favor of
petitioner.lawphil.net None of the circumstances enumerated in Article 2208 of the Civil Code
exists. The present case is clearly not an unfounded civil action against the plaintiff as there
is no showing that it was instituted for the mere purpose of vexation or injury. It is not sound
public policy to set a premium to the right to litigate where such right is exercised in good
faith, even if erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual damages
to Mindanao Terminal. Although actual expenses were incurred by Mindanao Terminal in
relation to the trial of this case in Davao City, the lawyer of Mindanao Terminal incurred
expenses for plane fare, hotel accommodations and food, as well as other miscellaneous
expenses, as he attended the trials coming all the way from Manila. But there is no showing
that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the
protracted trial of the case necessitating the incurrence of expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City,
Branch 12 in Civil Case No. 25,311.97 is herebyREINSTATED MINUS the awards
of P100,000.00 as attorneys fees and P83,945.80 as actual damages.
SO ORDERED.